ArcelorMittal’s safety investment pays off
The multinational sees results from its efforts to
tackle methane-associated accidents during mining

84

Unearthing Kazakhstan’s metallic riches
Investment in the country’s mining and metals
production sector is back on track
INVEST IN KAZAKHSTAN 2011

8

89

Good things come in small packages

129

Opportunities abound for extracting precious
metals – and not just for big companies

92

Keeping the nuclear faith

Foreign banks poised for the upturn
Kazakhstan’s banking sector looks likely to
beneﬁt from a ﬂurry of international interest

131

The country maintains its commitment to nuclear
power; with a message from Vladimir Shkolnik,
Chairman of the Board of Kazatomprom

Support from the top for Islamic ﬁnance
The country has embraced Islamic banking
practices, aiming to build links with its neighbors

Business centers
Energy and infrastructure

97
102

133

Building a grid that’s ﬁt for purpose

Thriving city in need of further
housing capacity

Kazakhstan addresses a north-south imbalance

Rapid growth leaves Almaty short of living space

Renewable energy gathers momentum

138

Industries are being encouraged by both the
government and the UN to use ‘greener’ power

105

Businesses have ﬂocked to relocate to Astana

Industry and services
Infrastructure – building a new backbone
A nationwide framework for transportation and
communication links is starting to take shape

107

Stronger demand for
construction materials

142

Real estate rebuilds toward recovery
Investors show more caution this time round

114

145

118
121

147
152
155

Resurgence of railway set to catalyze future growth

126

INVEST IN KAZAKHSTAN 2011

The race is on to bring phone services
to the masses
Kazakhstan’s telecoms sector is pushing to extend
its impressive investment track record

158

Breaking the mold
Recovery measures could provide a template for other
economies; with a message from Grigori Marchenko,
Governor of the National Bank of Kazakhstan

Mass-market stores and malls gain ground
The transition from bazaar to mall has been slow, but
more mass-market brands are venturing eastwards

Rail reforms will support diversiﬁcation

Banking and ﬁnance

From triage to treatment:
improving healthcare
Kazakh citizens beneﬁt from a focus on health

Getting there
New and enhanced air, road and rail facilities put
the country on the international transport map

Fertile ground for ventures to support
a growing economy
A wealth of opportunities exist for foreign companies
in the services sector to make their mark

A new hub for road and rail transportation
Kazakhstan courts investment by promoting location

Strong growth despite setbacks
Both arable and livestock farming in Kazakhstan are
beneﬁting from measures to boost productivity

As the economy improves, keeping up with the
demands of building projects is proving tough

110

Capital on the steppe

Steppe out for world-class adventure
The country prepares for a new breed of tourist

162

Index of advertisers

10

FOREWORDS AND INTERVIEW

Nursultan Nazarbayev
President of the Republic of Kazakhstan

ow that Kazakhstan’s
economy has resumed rapid
growth, my task will be to
ensure sustainable and
balanced development for our
country’s third decade of independence.
International investment is vital to our
government’s efforts to diversify the
economy, and to increase productivity
and competitiveness.
In Kazakhstan’s 20 years of
independence, we have built a stable and
prosperous economy that is rapidly catching
up with the developed world. We have
successfully overcome several crises, from the
aftermath of the Soviet Union’s collapse when
the new country was struggling for survival, to
the recent international economic crisis.
Thanks to the government’s anti-crisis
program and the strategy of sovereign wealth
fund Samruk-Kazyna, Kazakhstan managed to
avoid recession and was one of the ﬁrst
countries to emerge from the downturn.
Today, Kazakhstan is back on a steady
growth path. We achieved GDP growth of
seven percent in 2010, and plan to maintain
this pace of economic expansion. Between
1994 and 2010, Kazakhstan made a massive
leap in income per capita from $700 to
$10,000. We have set ourselves the target of
further raising annual income per capita to
$15,000 by 2016, which will put Kazakhstan
among the world’s high-income countries.

N

INVEST IN KAZAKHSTAN 2011

To achieve this, we need to take the
economy to a new level. In 2010, we
launched the Country Development Strategy
to 2020, which set out our main goals for the
post-crisis decade. We are also implementing
the State Program of Industrial-Innovative
Development to modernize and diversify the
economy. Broadening the economic base
beyond the extractive industries will protect
Kazakhstan from future crises.
The policy of maintaining a high level of
international reserves also contributes to
Kazakhstan’s economic stability. Reserves,
including those held in the National Fund,
amounted to $69 billion as of April 2011.
We must ensure that the beneﬁts of
Kazakhstan’s thriving economy are felt
throughout the country, and that no one is
left behind. We have already seen a drop in
unemployment and made signiﬁcant
investments into public services and
infrastructure, but we plan to do more.
Recent events in North Africa, the Middle
East and Central Asia have demonstrated the
importance of socio-economic conditions as
a contributor to stability. Following the April
2011 presidential elections, the
government’s priorities are to develop a
coherent social policy and to reduce
development gaps within the country.
The People’s IPO program is intended to
allow more people to share in Kazakhstan’s
prosperity, and to beneﬁt from the growth of

FOREWORDS AND INTERVIEW

our largest companies. Minority stakes in
state-owned companies will be distributed to
retail investors via the Kazakhstan stock
exchange. This will have the dual beneﬁts of
stimulating the local ﬁnancial market and
giving the population a direct stake in the
country’s economic performance. The Kazakh
government and Samruk-Kazyna are working
with international advisers to prepare the
program, and the companies to be listed are
due to be announced in the autumn.
Kazakhstan is already a beacon of
stability, with more than 100 ethnic groups
and people of numerous religions living
harmoniously together. We have also managed
to establish good relations with our neighbors
Russia, China and the Central Asian
republics, as well as nations from Europe, the
Americas, East Asia and the Islamic world.
Our links within the Eurasian region have
intensiﬁed recently with the launch of the
Customs Union in July 2010. Alongside
Russia and Belarus, Kazakhstan was a
founding member of the bloc, which will give
investors access to a market of more than
160 million people.
As a major exporter of both fuel and
grain, Kazakhstan has another role to play in
regional stability. Our planned increase in oil
and gas production, with the launch of the
Kashagan oilﬁeld and other new capacity,
will contribute to energy security. At the
same time, we are investing in

energy-efﬁcient technology and renewable
energy to minimize the environmental impact
of our economic expansion. Rising global
food prices have raised fears of food
shortages. Kazakhstan is already an exporter
of high-quality grain and has the potential to
increase food production, including through
our ambitious project to raise our exports of
environmentally clean meat.
For projects across the natural
resources, agriculture, processing and
high-tech sectors, Kazakhstan is seeking
additional foreign investment. Already the top
destination in the CIS in terms of foreign
direct investment per capita, Kazakhstan
wants to beneﬁt further from additional
investment – not just in ﬁnancial terms but in
the introduction of new technologies and
business practices.
The Kazakh government’s efforts to
encourage investment include the launch of a
new Tax Code, creation of special economic
zones and industrial parks, and reforms to the
judicial system to ensure the rights and
property of both individuals and businesses
are fully protected. We aim to become one of
the top 50 countries in terms of the business
environment by 2020, and to become one of
the top 10 ﬁnancial centers in Asia by the
same date. As we work towards these goals,
and Kazakhstan enters a new phase of
post-crisis growth, we want international
investors to be with us every step of the way. n
INVEST IN KAZAKHSTAN 2011

11

FOREWORDS AND INTERVIEW

HE Erlan Idrissov
Ambassador of the Republic of Kazakhstan to the United States

am delighted to present to you the
sixth edition of the annual “Invest in
Kazakhstan” guide. Published by
Newsdesk Media Group, this book
provides investors with an insight into
the exciting opportunities in the Republic of
Kazakhstan and up-to-date information on
the economy and business climate.
Kazakhstan, the largest economy in the
Central Asia region, already has a stellar
record of attracting international investment,
receiving more than $120 million in foreign
direct investment (FDI) in the past two
decades. Within the CIS region, Kazakhstan is
second only to Russia in the total volume of
FDI attracted, and is the region’s top country
in terms of FDI per capita.
This achievement is a product both of
Kazakhstan’s rich endowment of hydrocarbons
and mineral resources, and of the
government’s enduring commitment to
supporting economic growth. Kazakhstan’s
well-known strength in the natural resources
sector is increasingly being matched by the
emergence of other promising sectors
including communications, agriculture,
logistics and ﬁnance.
Early investors, such as the oil and gas
majors Chevron and ExxonMobil, have been
joined in Kazakhstan by international
companies from a range of sectors, among
them GE Transportation, Intel, Microsoft and
Baker & McKenzie.

I

The expansion of the economy beyond its
core sectors is being promoted by the Kazakh
government. Last year, we launched the State
Program for Industrial-Innovative Development.
Even as Kazakhstan heads rapidly towards its
‘golden age’ of oil and gas production, with
major new capacity – including the offshore
Kashagan ﬁeld – due to become operational
soon, the government is taking the long view:
We are building a balanced and diversiﬁed
economy, that will ensure sustainable growth
for many decades into the future.
The program will boost the creation of
new industries and the modernization of
existing sectors of the economy. We are well
aware of the beneﬁts that cooperation with
international investors can bring, in particular
in terms of cutting-edge technologies.
Kazakhstan is advancing steadily on the
World Bank’s Doing Business index, and was
one of the top reformers globally in 2010.
Kazakhstan’s government continues to explore
ways of making the country more
investor-friendly. The new Tax Code introduced
in 2009 is designed to encourage investment
outside the extractive industries, by gradually
lowering corporate taxes. Value-added tax has
also been cut to 12 percent.
Kazakhstan’s entry to the Customs Union
as a founder member, alongside Russia and
Belarus, means that companies operating in
Kazakhstan now have access to a market of
more than 160 million people. n
INVEST IN KAZAKHSTAN 2011

15

18

FOREWORDS AND INTERVIEW

Samruk-Kazyna’s
positive growth strategy

Timur Kulibayev
took over as head
of Kazakhstan’s
sovereign wealth fund
Samruk-Kazyna in
April 2011. He outlines
the role that the fund
will play in growing
and diversifying
Kazakhstan’s
post-crisis economy

INVEST IN KAZAKHSTAN 2011

Q. What are your aims for
Samruk-Kazyna?

Q. What are the priority
sectors for investment?

A. Kazakhstan’s emergence from the global

A. All key industrial sectors – including oil

ﬁnancial crisis was a major achievement for
Samruk-Kazyna, which proved itself as a
successful crisis manager. We have now
switched to a positive growth strategy.
President Nursultan Nazarbayev has set
the target of least seven percent annual
economic growth. Our portfolio companies will
be important contributors to this goal,
because they are responsible for a signiﬁcant
share of Kazakhstan’s GDP.
Samruk-Kazyna companies must
become ‘national champions’, powerful and
innovative businesses able to compete on a
global scale. This is the key to transforming
Kazakhstan into one of the world’s most
competitive economies.
Our priority is to diversify and modernize
the economy. We have started a radical
modernization of existing industrial assets and
infrastructure. Samruk-Kazyna is also working
to diversify production and increase added
value, and export potential. Thirdly, our
companies are building the infrastructure
needed to ensure dynamic economic growth.
This is a difﬁcult path, and one that
other countries have been pursuing for
decades. However, in today’s fast-paced
world, it is essential not to fall behind.
Kazakhstan’s achievements in its ﬁrst 20
years of independence will determine the
pace of future growth.

and gas, mining, electricity, transport and
communications, chemicals and
pharmaceuticals – are priorities for us.
The oil and gas industry has a special
position in Kazakhstan’s economy. We want
to attract international investment for the
construction of new production facilities and
modernization of existing assets. Kazakhstan’s
three largest oil reﬁneries are being rebuilt
and, in future, will produce high-octane fuel
compliant with European standards.
Kazakhstan’s chemicals industry
has considerable potential, due to our
abundant raw materials, and rising
domestic and international demand for
a range of chemical products.
Power generation is vital to Kazakhstan’s
development. Both consumers and industrial
users need reliable electricity supplies, which
will require investment into generation and
transmission capacity.
Due to Kazakhstan’s geo-strategic
location, there are many opportunities in
the transport and communications sectors.
Kazakhstan’s transport infrastructure is
expected to receive investments of around
$26 billion in the next decade.
As Kazakhstan has some of the world’s
largest mineral reserves, the development of
a mining and smelting industry is a priority.
Samruk-Kazyna is creating new mining and

FOREWORDS AND INTERVIEW

metallurgical enterprises based on the most
advanced technologies.
Kazakhstan is an industrial country,
whose ‘growth points’ now include the
transportation, energy, communications
and high-tech innovative industries. These
sectors are providing growth based on
technology, rather than the production of
raw materials. This emerging trend will
drive investment demand in Kazakhstan
in the long term.

Q. What progress has
Samruk-Kazyna made so
far in diversifying the economy
and creating new industries?
A. Samruk-Kazyna is carrying out 20 projects
under the State Program of IndustrialInnovative Development 2010-14. With a
combined cost of $22 billion, these projects
account for 51 percent of the total cost of
the program and span nearly all the priority
sectors of the economy.
Our focus is on the chemicals industry.
The Joint Chemical Company, set up in
2009, made a thorough analysis of the
chemicals market and identiﬁed investment
priorities. Kazakhstan’s ﬁrst integrated gas
chemical complex is being built at Atyrau,
at a cost of $2 billion.
Reconstruction of the Stepnogorsk
sulfuric acid plant is another key step in
developing Kazakhstan’s chemicals industry,
and will ensure that the uranium sector
has a stable supply of sulfuric acid.
We are also investing into the
upgrade of a suspension-ﬂotation phosphate
concentrate plant to supply high-quality
phosphate fertilizers.

Q. What is the status of the
people’s IPO program?
A. The program will involve Kazakhstan’s
population in the country’s economic
development, and give all citizens the

opportunity to become stakeholders
in the largest and most promising
Kazakh companies.
We are preparing the program in
cooperation with independent consultants,
including investment banks Citi and UBS,
big-four ﬁnancial services company
PricewaterhouseCoopers and law ﬁrm
Cleary Gottlieb Steen & Hamilton.
In fall 2011, we will announce
the participating companies. At the
same time, we will give information on
the timing and conditions of the IPOs.
Everything will be done to protect the
interests of Kazakhstan’s citizens.

Q. Where are the opportunities
for foreign companies in
Samruk-Kazyna’s
investment projects?
A. Most of Samruk-Kazyna’s investment
projects are being carried out in cooperation
with foreign partners. In the past,
cooperation between Kazakhstan and
international investors has been focused
on the hydrocarbons sector, but now new
areas are opening up.
We have signed agreements with
foreign companies, including General Electric,
China Datang Overseas Investment Central
Asia, CGNPC, Dae Jae, Finmeccanica,
Chemieanlagenbau Chemnitz, Eurocopter,
Çalık Holding and many others. We work with
both international ﬁnancial institutions and
commercial banks.
As Kazakhstan leaves the crisis behind,
the economy is booming, and we need to
stimulate investment. Government support
for investment includes the introduction of a
new tax code in 2009, giving advantages to
enterprises in the manufacturing sector.
In the ﬁrst quarter of 2011, investment
grew 7.4 percent, with the private sector
responsible for almost the entire volume of
direct investments. The share of foreign
investments exceeded 30 percent. n

In the past,
cooperation
between
Kazakhstan
and investors
has been
focused
on the
hydrocarbon
sector, but
now new
sectors are
opening up
INVEST IN KAZAKHSTAN 2011

19

OVERVIEW

Transformation into a
regional powerhouse

The energy and industry of Kazakhstanâ&#x20AC;&#x2122;s
population have turned the country around
during the past two decades, writes Ben Aris

huge country the size of Western Europe,
Kazakhstan has vast mineral resources and
enormous economic potential. But perhaps
its biggest boon has been the energy and
industry of its people, who in just two
decades have transformed this country from an
agricultural backwater in the middle of the Central
Asian steppe to a regional powerhouse and a major player
on the global energy markets.
The varied landscape stretches from the mountainous,
heavily populated regions of the east to the sparsely populated,

A
Gas and oil have played a key role in
allowing the republic to develop

INVEST IN KAZAKHSTAN 2011

21

22

OVERVIEW

Rapid action by the National Bank of Kazakhstan contained
the damage from the global ﬁnancial crisis of 2008, and by
2010 the sector was already starting to recover
In response to the crisis, Kazakhstan’s authorities
devalued the currency, the tenge, to stabilize the market,
and injected $19 billion in economic stimulus. Rising
commodity prices also helped to revive Kazakhstan’s
economy, which registered seven percent growth in 2010.
Barring a dramatic decline in oil prices, strong growth is
expected to continue in 2011.
Foreign investors are returning not only to the traditional
extractive industries, but also to new areas such as trainbuilding and the service sector, which are helping to diversify
the economy. At the same time, the key sectors of energy and
mining continue to receive investment to drive them forward.
The president’s residence in Kazakhstan,
Central Asia’s wealthiest state

energy-rich lowlands in the west; and from the industrialized
north, with its Siberian climate and terrain, through the arid,
empty steppes of the center, to the fertile south.
Mineral wealth provides cash, but money alone is
not enough to ensure the prosperity of a country. As the
republic enters its third decade of independence, the
combination of natural-resource wealth and liberal
economic reforms are starting to bear fruit.
With an average annual gross domestic product (GDP)
growth rate of around 10 percent since 2000, the country is
among the fastest-growing economies of the world and
outpaces all other Central Asian states by far. By 2010, per
capita GDP was estimated to have grown more than tenfold
since the difﬁcult transition period in the mid 1990s. In
2002, Kazakhstan became the ﬁrst country in the former
Soviet Union to receive an investment-grade credit rating.

Oil and mineral wealth
Kazakhstan is the most prosperous of the Central Asian
states, and oil has played a key role in its development.
The opening of the Caspian Pipeline Consortium link in
October 2001, which connects the oilﬁelds in western
Kazakhstan with the Marine Terminal on Russia’s Black Sea
coast, marked the start of the republic’s rapid growth. In
2008, Kazakhstan began pumping some oil exports through
the Baku-Tbilisi-Ceyhan pipeline as part of a drive to lessen
its dependence on Russia as a transit country. A pipeline to
China opened in late 2005.
But the republic is also home to plentiful supplies of
other minerals and metals, such as uranium, copper and zinc.
Indeed, in the ﬁrst years following independence in December
1991 – Kazakhstan was the last of the 15 former Soviet states
to declare independence – the republic initially earned most of
its export revenues from exporting metals. It remains the
world’s largest producer of uranium.

New beginnings
Quick rebound
As in many other nations, the global economic crisis resulted
in a lot of damage, but the backdrop of political stability,
heavy investment, lower taxes and a transparent business
environment have combined to fuel a quick recovery.
INVEST IN KAZAKHSTAN 2011

The economy remains geared towards the extractive
industries, but the government, realizing that its economy
suffers from an over-reliance on these, has been making
concerted efforts to diversify and modernize the economy
with the development of other sectors.

OVERVIEW

Kazakhstan’s main centres
Russia

Astana
Karaganda

Baikonur Cosmodrome is the launch
site for Soyuz and other spacecraft

Lake Balkhash

Baikonur
Aqtau
Aral Sea
Almaty
Shymkent

Caspian Sea

China
Kyrgyzstan

Uzbekistan

Turkmenistan
Tajikistan

Over the past decade, the republic created arguably the
region’s most liberal and sophisticated banking sectors. Its
high exposure to the international debt markets meant that it
was badly wounded when the credit markets started seizing
up, as the mortgage crisis in the United States began
unfolding and the global ﬁnancial crisis struck in the fall of
2008. However, rapid action by the National Bank of
Kazakhstan contained the damage, and by 2010 the sector
was already starting to recover.
Kazakhstan has also embarked on an ambitious
diversiﬁcation program. This is the central goal of the
National Strategy until 2030, adopted in 1998, and the
State Industrialization and Innovation Program until 2015,
which was launched in 2003. In 2006, Kazakhstan

additionally announced a major drive to enter the top 50
most-competitive nations in the world within 10 years.
With food prices increasing around the world,
Kazakhstan will beneﬁt, thanks to its large agricultural
sector. The government has also launched programs that are
aimed at developing targeted sectors, such as transport,
pharmaceuticals, telecommunications, petrochemicals,
and food processing.
The future of the Kazakhstan economy will be fueled
by further integration into the international economic
community. To that end, the republic has been building up
relations with its neighbors. In 2010, the Customs Union of
Russia, Belarus and Kazakhstan was formally launched – the
ﬁrst stage in creating a regional common economic space. n
INVEST IN KAZAKHSTAN 2011

23

24

OVERVIEW

Bouncing back
This year sees Kazakhstan well on its way
toward a robust recovery. By Ben Aris

azakhstan is rebounding swiftly from the
worldwide economic downturn, with the
country’s economy looking set to surge due
to the advent of fresh oil and gas from the
Kashagan offshore ﬁeld.
Kazakhstan went into the 2008 crisis early. The
republic’s banks had been enjoying triple-digit growth for
several years, largely funded by loans and bonds drawn from
the international credit markets. So, as the US subprime
mortgage crisis unfolded and the credit markets dried up in
2007-08, the Kazakh banks were among the ﬁrst to suffer.
However, thanks to swift action from the National Bank of
Kazakhstan (NBK) and more than $4 billion in liquidity support
to the banking sector, Kazakhstan came through the storm.
First in, ﬁrst out. After commodity prices – particularly
oil – started to recover in 2010, so too has the economy. But
the republic is not out of the woods yet and a lot of clean-up
work remains to be done. The banking sector still has a
backlog of non-performing loans (NPL), though the strong
performance of the country’s energy and mining sectors
resulted in stronger-than-expected growth in 2010.

K

Banking regains buoyancy
The situation in the banking sector is gradually returning to
normal after agreements on debt restructuring at BTA Bank,
Alliance Bank and TemirBank. Having fallen hard during the
crisis, Kazakhstan’s banking sector is now poised to outperform
most of those in neighboring countries as it bounces back,
according to investment banks such as Renaissance Capital.
Thanks to a progressive reform program in the previous
decade, the structure of the Kazakh ﬁnancial sector is still one
of the best in the former Soviet Union and should return to
growth once the issue of debt restructuring is resolved.
Analysts estimate it will take around another two years for the
problems of NPL to be fully worked out.
INVEST IN KAZAKHSTAN 2011

In the short term, commodity prices will determine
exactly how the rest of 2011 pans out. But the unrest in
North Africa in the ﬁrst quarter of the year has already driven
oil prices – the key contributor to Kazakhstan's ﬁnancial
health – higher than most had been forecasting at the start of
the year. This boost buys the government more time to drive
through its wide-ranging reform program.
Kazakhstan’s economy grew by seven percent in 2010
and is forecast to continue its recovery in 2011 in the four to
ﬁve percent range. The services sector is estimated to account
for 51.8 percent of the country’s GDP in 2010, with industry
comprising 42.8 percent, and agriculture at 5.4 percent.
The oil price is expected to average in the order of $90
for 2011, and this will give a boost to budget revenues.
Meanwhile, the government is maintaining its extremely
conservative oil-price assumption of $65 in the budget, which
will almost certainly give it plenty of room for maneuver.
In general, as the economy begins to recover, so too
should the public ﬁnances. Budget revenues totaled
$30 billion in 2010 – up 46.5 percent from 2009, and
6.5 percent above 2010 government projections – and the
budget deﬁcit was set at $5.5 billion (4.1 percent of GDP).
A robust recovery is expected to lead to an improvement
in the government’s ﬁscal position. The state budget for
2011-13 has been adopted with a much lower deﬁcit of
2.8 percent in 2011, based on additional revenues of
$2.8 billion from a doubling of the oil export duty in 2011
to $40 per metric tonne.
In the clearest sign yet of a return to economic normality,
the NBK ended its control of the exchange rate in February
and returned to a managed ﬂoat system. The Kazakh currency,
the tenge, is expected to remain relatively stable against the
dollar throughout 2011, although there may be some slight
appreciation, say analysts.
One of the most difﬁcult economic challenges that the
country faces is coping with inﬂation. Consumer price inﬂation
in Kazakhstan in 2010 was in line with Renaissance Capital’s
7.7 percent forecast and was mostly driven by growing global
commodity and food prices. The major driver was food prices,

OVERVIEW

The ďŹ nancial sector is one of the best in the
former Soviet Union and should return to
growth once debt restructuring is resolved
INVEST IN KAZAKHSTAN 2011

25

26

OVERVIEW

which grew 10.1 percent and contributed half of the increase,
while services and non-food products grew 6.8 percent and
5.5 percent respectively, with roughly equal contributions.
On the back of the brightening economic picture, Fitch
Ratings revised its sovereign rating on Kazakhstan to ‘positive’
at the start of 2011, while Standard & Poor’s raised its
sovereign rating one notch to ‘BBB’.
Kazakhstan is slightly behind countries such as Russia
and China – where growth is expected to slow over the medium
term – but in terms of development, it should continue to
close the gap on its bigger cousins to the north and east. The
medium-term prospects for strong growth are very good. “GDP
was up more than we expected in 2010, owing to the recovery
in prices for commodities including oil, gold, copper and
uranium,” says Jean-Christophe Lermisiaux, head of research
at Visor Capital. “And there is no reason to see this changing
for the foreseeable future.”
However, he adds that there are disparities between the
natural resources sector and other sectors of the economy – in
particular the banking sector, which is “still convalescing”.

Energy potential
Oil and gas remain the engine of the economy. Kazakhstan
is already among the top 20 oil producers in the world, and
production continues to pick up. Close on the horizon is the
launch of the ﬁrst phase of Kashagan Field – the world’s
largest offshore oil-and-gas project – which is expected on,
or possibly ahead of, schedule in the ﬁrst half of 2013. The
start of production from this ﬁeld will be a game-changer,
as it will massively boost the country’s production and
increase its geopolitical standing.

However, the development of the extractive industries is
shifting from simply lifting production levels to expanding
distribution, increasing efﬁciency and adding more value.
The major event in the oil-and-gas industry in recent
years has been the opening of the Central Asia-China gas
pipeline and new oil pipelines linking oilﬁelds from western
Kazakhstan to China. Arguably, building pipelines to new
markets has a bigger impact on the economy than ﬁnding new
and bigger ﬁelds – Kazakhstan’s eastern neighbor remains the
primary market for its raw materials.
As well as underpinning global demand for commodities,
China accounts for 30 to 40 percent of Kazakhstan’s exports.
Construction of the Western Europe-Western China highway, and
the planned rail link from Zhetigen near Almaty to the Chinese
border, will allow Kazakhstan to further increase its exports.
The strong performance of the natural resources sector in
2010 has not been matched by an expansion across the board,
and the country is unlikely to see the kind of consumer boom
that it enjoyed in the run-up to the global economic crisis –
especially in the real-estate sector.
Banks have remained cautious when making loan
decisions, and clearing the backlog of unﬁnished real-estate
projects is only now nearing completion. The collapse of the
property market was painful and hit the ﬁnancial sector hard,
as it was heavily exposed to this market. However, helped by
government funds allocated through the anti-crisis program,
most of the lost ground has been recovered. As the sector
slowly returns to health, property developers are likely to start
considering the ﬁrst post-crisis projects in 2011.
“2010 was a transition year for Kazakhstan; 2011 will
be the year of big decisions,” says Lermisiaux. n

Country climbs World Bank’s ‘Doing Business’ rankings
The government’s efforts to
improve Kazakhstan's rating in the
World Bank’s ‘Doing Business’
survey started in 2008 with the
establishment of a working group
headed by deputy prime minister
Erbol Orynbayev, and these were
rewarded in the 2011 report.
Among the world’s economies,
Kazakhstan improved its business
conditions the most during the past
year, moving up 15 places in the
INVEST IN KAZAKHSTAN 2011

‘ease of doing business’ rankings
to 59th spot among 183 countries,
according to Doing Business 2011.
The republic improved
conditions for starting a business,
obtaining construction permits,
protecting investors and trading
across borders.
Reforms have been made easier
to implement, thanks to the general
rise in prosperity in Kazakhstan.
Overall, macroeconomic stability

and high oil prices allowed
Kazakhstan to achieve economic
growth of around 10 percent
annually over the past ﬁve years,
according to the World Bank's
‘Index of Economic Freedom’.
Kazakhstan's ‘ease of doing
business’ ranking also improved
slightly in the 2010 report,
reﬂecting improvements in three
key indicators. The most notable
improvement was in the ‘dealing

with construction permits’
indicator, owing to a signiﬁcant cut
in the cost from $1,431 to $119.
Kazakhstan cut its corporate tax
rate from 30 percent to 20 percent
in 2009. The corporate tax rate will
be further reduced to 17.5 percent
in 2013 and 15 percent in 2014.
The country also reduced the rates
for labor taxes and mandatory
contributions paid by employers,
and introduced a new tax code.

28

OVERVIEW

The newly built Esentay complex in
Almaty, which includes the highest
tower in the city

Kazakhstan’s economic
and investment policy
The Government of Kazakhstan continues
to pursue its economic priorities under its
2030 Strategy and 2020 Strategic Development
Plan. The outcome of the presidential elections
last April provided a powerful impetus to
deepen the ongoing reforms, enhance the
Government’s institutional support for
entrepreneurship and increase its efﬁciency

n recent years, much has been done to create a favorable
business climate in Kazakhstan. Today, the number of active
small and medium-sized businesses exceeds 675,000,
accounting for one-third of the GDP and providing jobs for
more than 25 percent of Kazakh citizens.
Even during the time of the worldwide ﬁnancial crisis,
the Government did not ignore domestic entrepreneurs,
developing various tools of business stimulus, while the legal
framework for business support is being improved all the time.
Roadmap 2020, a large-scale initiative to spur
entrepreneurship in modern Kazakhstan, has been

I

INVEST IN KAZAKHSTAN 2011

implemented since 2010. In 2011, under the program, a
credit portfolio of domestic entrepreneurs will to be subsidized
to the tune of $2.5 billion.
With the operation of the Customs Union, extensive
opportunities have opened for entrepreneurship. In 2010,
bilateral trade with Russia increased by 27.2 percent, while
trade with Belarus rose by 55.8 percent. Further increases are
expected once internal borders are eliminated within the Union
and progress is made in setting up a Single Economic Space.
Kazakhstan aspires to become a trade, logistical and business
hub for Central Asia.
All these efforts come under one strategic task set
forward by the President. His goal: to raise Kazakhstan’s GDP
per capita to $15,000 and make it a high-income country.
Such a task foresees seven percent economic growth over
the mid-term, mostly through processing industries. This
means that investments to ﬁxed capital during the next ﬁve
years will have to rise by at least 50 percent.
The Government of Kazakhstan pursues a favorable
investment climate, maximum openness and stability. Major
joint projects have been launched with leading foreign

OVERVIEW

companies, with the level of foreign investment reaching
$130 billion since 1993.
A large portion of foreign investment, about 33 percent,
goes to the mining industry, mainly concerning oil and gas.
From 1993 to 2010, inward manufacturing investment
amounted to $12.5 billion, or about 10 percent of the total.
Kazakhstan has adopted the ﬁve-year State Program
for Accelerated Industrial-Innovative Development, which is
aimed at shifting investors’ focus from extractive industries
toward the establishment of export-oriented and high-tech
and innovative industries.
The program is designed to ensure industrial growth
through the implementation of 469 large investment
projects and the opening new production facilities.
The estimated total of direct expenditure for investment
projects under the Industrialization Program is in excess
of $40 billion.
Of particular importance is the implementation
of niche projects for manufacturing
products that are not yet produced in
Kazakhstan – investors who are interested
in these industries and in such projects
will be specially supported by the
Government of Kazakhstan.
The establishment of the Customs
Union will create a free and uniﬁed goods
market of 170 million consumers. Within
the Union there are additional opportunities
for business, including the reduction of transactional
costs and transitory expenses, and the release of substantial
working capital, which can be used for developmental
purposes. Within the framework of the CES, the free
movement of goods, investment capital, services and labor
will be ensured. Economic integration will facilitate a
coordinated macroeconomic policy to enable competition,
while streamlining public procurements as well as
government subsidies for industry and agriculture. These
reforms are all aimed at creating favorable conditions for
domestic exporters to access the transport infrastructure of
partner countries, thereby reducing transport costs and
improving competitiveness of Kazakh products both inside
and beyond CES markets.
The Customs Union and CES are designed to establish
favorable conditions and encourage the development of new
industries. It is designed to expand to include other states
in the region and, if conditions warrant, even to establish a
monetary union with a common currency.

The Kazakhstan Government pursues a pro-business,
yet equitable and predictable, corporate tax policy that
allows businesses sufﬁcient income for further growth and
development while meeting the needs of our social policy.
In light of the current economic situation, further gradual
reductions are planned.
The Government has also been taking signiﬁcant steps to
combat corruption and form an adequate legislative framework to
meet the contemporary demands of free-market entrepreneurship.
These reforms have brought about results. According to
the World Bank’s Doing Business 2011 report (see page 26),
Kazakhstan was listed in the top 10 countries for creating a
favorable environment for entrepreneurship.
Further reforms and measures aim to improve the business
climate in Kazakhstan. The focus will be made on reducing
administrative barriers and completing reform of the legal system.
Kazakhstan also plans to improve its economic
attractiveness by prioritizing much-needed infrastructure

Kazakhstan was listed in the top 10
countries for creating a favorable
environment for entrepreneurship
investment projects. In the transportation sector, these
include: the modernization of airports in Semey and
Ust-Kamenogorsk; the construction of modern port
facilities in the Shulbinsk gateway; highway reconstruction
and expansion; and several major railway projects.
Another massive, but necessary, investment is
needed in the country’s electrical power grid.
Modernization, renovation and construction of new
generating capacity will require more than $5 billion by
2014 – more than $1.7 billion of that co-financed from
the public budget. The development of ‘green’ energy
projects is also of particular interest, with a plan to boost
electricity production from renewable resources. In total,
more than $7 billion will be invested in the electric
power industry in the medium term.
These much-needed infrastructure investments will
help speed Kazakhstan’s overall development, trade
integration and position our nation for further growth in
the global economy of the 21st century. n
INVEST IN KAZAKHSTAN 2011

29

30

overview

Democracy, politics
and society

According to the Central Elections
Commission, 89.9 percent of the
population turned out to vote in
Aprilâ&#x20AC;&#x2122;s election, as observed by many
international monitors
Invest in KAZAKHSTAN 2011

overview

I

equality in covering candidates in the news programmes...
Election day was calm.”
At the same time, the ODIHR made a number of
criticisms and suggestions for improvements to the electoral
process, and issued a critical report on the elections.
At an Astana press conference the day after the elections
were held, Tonino Picula, head of the short-term OSCE
observer mission to Kazakhstan, told journalists: “Kazakhstan
should be praised for its economic growth, but unfortunately
this election is a sign that its democratic processes have not
grown at the same pace.” In particular, there was rather strong
pressure within state institutions, such as universities,
hospitals and military establishments, to go out and vote
for the incumbent.

ncumbent Nursultan Nazarbayev easily and predictably
won the April presidential election, brought forward from
2012. Nazarbayev has been leading Kazakhstan since he
deftly managed the country’s declaration of independence
from the Soviet Union in December 1991. The latest
election raised the president’s share of the vote from an already
high 91.2 percent in 2005 to 95.5 percent in 2011. The
Presidential
official turnout figure of 89.9 percent was also startlingly high,
given the low-key electoral campaign and the lack of any serious
challenger to the president. This figure was verified by many
observers and human rights NGOs, inlcluding the International
Republican Institute (IRI), which has its head office in
Washington DC. In February 2011, the IRI together with the
National Endowment for Democracy issued a report, the 2011
Poll Survey of Kazakhstan Public Opinion, which indicated a 90
percent approval rate for the incumbent.
Nursultan Nazarbayev
The elections paved the way for the government to
make changes and continue the pace of reforms. Kazakhstan
is experiencing an uptick in its standard of living, continued
(7,850,958)
recovery from the global economic crisis, and relative
freedom compared to neighboring states in Central Asia.
The official turnout figure of 89.9 percent was also
startlingly high, given the low-key electoral campaign and the
lack of any serious challenger to the president. None of his
three rivals took more than two percent of the vote.
The closest runner-up was Gani Kasymov, with just
1.9 percent.
Most of the observers from the
inter-governmental organizations, including the
Commonwealth of Independent States (CIS),
Collective Security Treaty Organization (CSTO) and
Zhambyl Akhmetbekov
Organization of Islamic Cooperation (OIC),
announced that the elections were free and fair.
(111,924)
The Office for Democratic Institutions and
Human Rights (ODHIR) observer mission, which
usually gives a more cautious assessment of the
elections in Kazakhstan, acknowledged that “compared
to the last presidential election, media provided more

95.55%

1.36%

election breakdown

Gani Kasymov

1.94%
(159,036)

Assembly of People of Kazakhstan, Daily Times

After securing 20 years of economic
and political stability for Kazakhstan,
Nursultan Nazarbayev won a landslide victory
in April. Some have questioned whether the
democratic process has truly evolved, but
there’s no denying the numbers that have
turned out to vote. By Margot Linsky

Mels Eleusizov

1.15%
(94,452)

Invest in KAZAKHSTAN 2011

31

32

overview

Kazakh leader Nursultan Nazarbayev won the
country’s recent presidential election with an
overwhelming 95 percent of the public vote

The Council of Europe Parliamentary Assembly
observation mission stated that “PACE has observed elections
in Kazakhstan in the past and is pleased to state progress from
one election to another in this country. The delegation is united
in its view that despite certain imperfections that invariably
mar all elections in any country, the outcome of this vote truly
reflects the will of Kazakhstan’s electorate.”
Some American experts and observers were less critical of
the election, arguing that Nazarbayev truly has the trust of his
people. Ariel Cohen, senior research fellow at Heritage
Foundation in Washington DC, said after the election: “Nursultan
Nazarbayev has a reserve of trust from the population. I, to be
honest, am not surprised by such figures.
“The people of Kazakhstan look at their neighbors such as
Kyrgyzstan and Tajikistan, and they also look at the Middle East.
They do not want to undergo any revolutions, they don’t want to
Invest in KAZAKHSTAN 2011

have their houses burned or see private property destroyed. On
the whole, I believe that President Nazarbayev is well supported.”
Richard Weitz, director of the Center for PoliticalMilitary Analysis and senior fellow at the Hudson Institute in
Washington DC, was one of a number of monitors invited to
observe the April 3 election. “Like other monitors, I met with
the leaders of Kazakhstan’s major political parties, discussed
the ballot with officials, visited polling stations,
and talked with dozens of voters,” wrote Weitz in The Diplomat
newspaper. “I also exchanged views with monitors from the
Organization for Security and Cooperation in Europe – which
fielded the largest mission – as well as with other observer
teams, foreign diplomats, and the media. At the precincts I
visited in Almaty, for example, rules regarding the secrecy of the
ballot and the exclusion of electioneering or other inappropriate
behavior in voting areas were all followed scrupulously.”

OVERVIIEW

Tassos Sitsas, general manager, Japan Tobacco International (JTI), Central Asia
What prospects does Kazakhstan
offer investors?
Kazakhstan has created a good
environment for foreign
investment. For most FMCG
companies, the Central Asian
market is growing because of its
demand for high-quality
international brands.

For JTI, Kazakhstan is
considered an ideal export hub for
Central Asia. Its political stability
and efficient and predictable tax
system underpin investors’
commitment to this country.
What investments has JTI made in
the country?
Since 1993, JTI has invested around
$120 million – a significant portion
of this in the past three years –
to create state-of-the-art
manufacturing facilities and
to develop our people. Additionally,
the company has been one of the

The city of Almaty had lower turnout figures than much of
the country. Many people, especially those in their 20s and 30s,
said before the poll that they did not plan to vote. But while the
Almaty turnout was comparatively low, a respectable 68.5 percent
of the electorate is still reported to have voted in the city.
Meanwhile, at the town of Akkol in the Akmola region,
where the regional turnout was 89.7
percent, a crowd of around 40 residents
was gathered outside the polling station at
the Palace of Culture as a busload of
foreign journalists arrived. “For
Nazarbayev!” said one woman, when
asked for whom she voted.
“Because he is so good for the
country. He keeps the peace and our
standard of living goes up year by year.
We want him to stay the president for another 20 years.”
In the Palace of Culture’s lobby, a stand was set up to sell
snacks, meat, and dairy products at discounted prices, a fairly
common sight at polling stations. In other towns, voters left with
small electrical appliances such as kettles and hand blenders.
Nazarbayev himself voted early in the day at the National
Library polling station on Astana’s left bank. Soon after the
early elections were announced, Nazarbayev said that he did
not plan to campaign actively, but would stand on his record

most proactive international
investors in the broader social
sphere. JTI has supported veterans,
the disabled, low-income farmers
and other vulnerable sectors of
society.
JTI’s holistic approach to social
programs was recognized in
prestigious national awards, such
as Paryz and Altyn Zhurek.
What hopes does JTI have for its
investments in Kazakhstan?
JTI strives to maintain its status
as a credible partner for the
government. JTI’s operations are

not only the source of significant
investment in the country’s
manufacturing and industrialprocessing sector, but also provide
significant revenues for the
government – to date, totaling
more than $400 million in taxes
since entering the market.
JTI also believes that
establishing a sustainable dialogue
and consultation mechanism
between state authorities and
the business community is
instrumental in finding solutions
to interrelated issues, and
contributes to both parties.

over the past 20 years. However, the presidential Nur Otan
party mounted an effective campaign on his behalf.
At his victory rally in Astana, Nazarbayev seemed
untroubled by criticism of the election process as he prepared
for his fourth term as president. “More than 90 percent for a
candidate. Why, this is a sensation for Western countries,”

Most of the observers from
inter-governmental organizations
agreed the elections were free & fair
he said to supporters, the news agency RIA Novosti reported. “If
polls usually divide a nation into various party blocs, we have
united. While the word sees bloodshed and ethnic conflict, we
– all the ethnic groups and religions of Kazakhstan – are one.”
Timothy Ash, head of emerging markets research at Royal
Bank of Scotland, writes in a note that Nazarbayev’s re-election,
“will help reassure/reaffirm political stability in the country.
The longer-term issue, though, remains around the succession
to Nazarbayev, given he is currently 70 years of age.” 
Invest in KAZAKHSTAN 2011

33

34

OVERVIEW

Future prosperity
through diversification

Plans include the development of a
domestic pharmaceutical industry

INVEST IN KAZAKHSTAN 2011

OVERVIEW

In pursuit of diversiﬁcation, the
country has instigated initiatives
to encourage the growth of
non-resource sectors. By Ben Aris

il is essential to the Kazakh
economy, but to ensure
long-term prosperity, the
country must diversify away
from raw material extraction.
The Kazakh government is well aware of the
problem and had already launched an
extensive modernization program, even
before the 2008 global economic crisis
made diversiﬁcation imperative.
President Nursultan Nazarbayev laid out
the main goals of Kazakhstan’s modernization
program in his 2010 State of the Nation
speech. The president said that a large part
of the $8-billion-a-year transfers from the
National Fund – a reserve fund created from
oil revenues to the state – would be directed
to industrialization programs. Kazakhstan will
invest up to $20 billion in the non-resource
sectors of the country over the next ﬁve years,
but the goal is to use this investment to
prepare the ground for bringing in more
foreign direct investment, which, it is hoped,
will then take the lead in diversifying the
republic’s economy.

O

Projects identiﬁed
A list of priority projects has been drawn up
by the state agency Samruk-Kazyna, which
holds much of the state’s assets and has
been consulted for much of the industrial
reform policy. All in all, the industrialization
program will include 162 projects, with a
total budget of KZT6.5 trillion ($43 billion),
and the state expects that more than
200,000 jobs will be created.
Samruk-Kazyna has adopted a
two-pronged approach. First, the state agency
will help existing companies to increase the
value-added component of their production,
and so drive the processing and associated

manufacturing industries. The second line
of attack is to build the infrastructure to
support the creation of new businesses and
technologies. For example, among the
larger investments are: upgrading all three
petrochemical plants in Kazakhstan by 2014;
building a new gas-processing plant; ﬁnishing
the Balkhash, Mainak and Ekibastus GRES-2
power stations; and building a string of
locomotive plants that can supply the republic
and its neighbors with new trains.
To assist with the sector-speciﬁc
reforms, the president called for the
simpliﬁcation of the bureaucracy that
surrounds setting up a business. Among other
measures, the president said the costs of
starting businesses in Kazakhstan should be
cut by 30 percent in 2010, and another
30 percent in 2011.
A large part of this goal has already
been achieved, and the World Bank says
in its Doing Business 2011 report that
Kazakhstan has made more progress than
any other country in the world.
Other initiatives to extend this progress
include: accession to the World Trade
Organization; ongoing integration with other
Commonwealth of Independent States (CIS)
countries, in particular via the new Customs
Union with Belarus and Russia; developing a
law for the country’s Special Economic Zones;
and creating a roadmap for entrepreneurship
development up to 2020.
Michael Weinstein, director of the
European Bank for Reconstruction and
Development (EBRD) in Kazakhstan, which
has joined the diversiﬁcation effort and
committed $1 billion in capital to support the
drive, praises the government’s more
pragmatic approach to carrying out reforms.
“In the past, there have been various
diversiﬁcation programs that for one reason or
another did not succeed,” he says. “The new
program is more promising. Momentum is
building. There is a window of opportunity to
diversify – post-crisis, but before oil prices go
through the roof again.”
INVEST IN KAZAKHSTAN 2011

35

36

OVERVIEW

“Rather than looking at high-tech, the government is
targeting the things that the country needs”
Power generation is an important area
for investment, such as at the nuclear
reactor facility in Kurchatov, Kazakhstan

Agriculture is one of the
key sectors with huge
development potential

This is not the state’s ﬁrst attempt to remake the
shape of the economy, but experts believe that the new
program is a lot more likely to succeed. “The government
has set its sights a bit lower this time – the priority sectors
that President Nazarbayev has selected are the right ones,”
says Weinstein. “Rather than looking at high-tech, the
government is targeting sectors such as pharmaceuticals,
chemicals, petrochemicals, metals, construction materials
and fertilizers – the things that the country needs.”
Key sectors that the government hopes to develop:
s Agriculture The territory of Kazakhstan is the
size of Western Europe and agriculture has huge
potential. The basics are already there, but most
of the supporting infrastructure is not. The state
plans to increase productivity in agriculture and
processing of agricultural products by a factor
of two by 2014, through the application of new
equipment and new technologies. At the same
time, the state would like to increase exports of
agricultural products to Russia, Belarus, Central
Asia and Middle Eastern countries. “Building the
value chain in agriculture is important. The
agriculture sector is difﬁcult to invest in, but we
hope [the EBRD’s participation with] investment
will encourage other companies to become more
transparent,” says Weinstein.
INVEST IN KAZAKHSTAN 2011

s Infrastructure Support for infrastructure of all
types is crucial. In the energy sector, the EBRD
and other international organizations helped to
ﬁnance the construction of a new north-south power
line to address the imbalance between the ends of
the country, while the state is also investing in
additional power-generating capacity.
s Industry The state will use various means to boost
non-oil production and hopes to increase the share of
non-oil exports to 45 percent from 27 percent in 2010.
Three new locomotive plants are in operation, or close
to it, and more engineering projects are in the pipeline.
At the same time, the state will encourage investment
to decrease energy consumption per GDP unit by
25 percent, while increasing productivity in processing
industries by a factor of two. The main focus will be on
boosting the share of processing industries in GDP to
at least 13 percent – from 11 percent in 2009 – and
increasing the share of innovation-driven enterprises to
20 percent from four percent.
s Construction materials Construction and real estate
were major economic drivers before the crisis, but
development still relies heavily on imports. Another
plank of the diversiﬁcation program is to develop the
domestic construction materials sector. The president
called for raising the share of domestically produced
construction materials to 80 percent by 2014.

OVERVIEW

The best is yet to come
Message from Asset Issekeshev, Deputy Prime Minister – Minister of Industry and New Technology
Blessed with bountiful natural
resources and situated between
several important trade routes,
Kazakhstan is on the path to
growth and has much to offer
potential investors.
Kazakhstan saw strong growth
across most industrial sectors in
2010. The government plans to build
upon this in the future, increasing
production, helping new sectors to
emerge, and attracting more foreign
investment and new technologies.
Overall, industrial production
grew by 10 percent in 2010,
with increases in industries
including manufacturing, mining
and power generation.
Last year was also highly
signiﬁcant in that it saw the
launch of the Forced
Industrial-Innovative Development
Program, a four-year initiative
designed to transform Kazakhstan
into a modern, post-industrial
economy. Another important step
was Kazakhstan’s entry to the
Customs Union, where it is a
founding member alongside
Russia and Belarus.

The industrialization program
focuses on four priority sectors of
the economy: the areas where
Kazakhstan has historically been
strong – in particular the extractive
industries; related areas such as
machine building and construction;
export-oriented sectors such as
agribusiness and light industry; and
advanced technologies, including
IT, space technologies and
nanotechnology. State holding
company Samruk-Kazyna is working
with strategic investors – both
domestic and foreign – on
large-scale industrial projects such
as the expansion of Kazakhstan’s
three reﬁneries. These major
projects will have a knock-on effect
in providing new opportunities and
markets for domestic small and
medium-sized enterprises.
Foreign investment and
technology transfer is important for
the success of the industrialization
program. The government has made
creating new partnerships with
foreign companies and attracting
foreign investment a priority. One
success story so far has been the

s Pharmaceuticals President Nazarbayev is keen to
develop a domestic pharmaceutical industry and in
early 2009, launched an ambitious program aimed
at raising the volume of domestically produced
medicines consumed to half of the total by 2014.
This means building many new plants in a relatively
short time, and the government is actively looking
for foreign investment to facilitate the program.
The furthest advanced project is that of Chimpharm
– by far the biggest domestic player – to build a
new tablet factory in Astana. This will be the ﬁrst

launch of the locomotive assembly
plant by GE Transportation and
Kazakhstan’s national rail
company Kazakhstan Temir
Zholy. To further encourage
investment, six free
economic zones have been
launched with generous
incentive packages
for domestic and
foreign investors.
Kazakhstan attracted a total of
$13.1 billion in foreign direct
investment in the ﬁrst nine months
of 2010 – a 1.1 percent increase
year on year. Investments outside
the natural resources sector were
2.5 times higher than in 2009.
The ﬁrst reason for Kazakhstan’s
attractiveness as an investment
destination is its endowment of
natural resources, including oil,
gas, coal, uranium and numerous
metals. Overall, the country is
sixth in the world in terms of
natural resources.
While Kazakhstan has a
population of just 16 million, the
launch of the Customs Union in
2010 gives companies operating in

the country access to a market of
more than 170 million people. In
addition to its historic closeness to
Russia, Kazakhstan is positioned on
a geo-strategic axis between
Russia, China, Europe, the Middle
East and South Asia.
The Kazakh government has
been working steadily to provide
a good investment climate. This
was reﬂected in the World Bank’s
Doing Business 2010 ranking,
where Kazakhstan was one of the
top reformers, leaping 15 places.
In 59th place, Kazakhstan is close
to its goal of entering the top 50
countries on the index.

plant of any kind to be located in the new capital.
The Kazakhstan Development Bank has already
provided the funding and is also backing a second
project to expand production facilities in Shymkent.
Other players – including GlobalPharm, Nobel AFF
and Romat – are reportedly planning new lines or
new plants.
“Industrial development is our chance in the new decade
for new opportunities for our country,” said President
Nazarbayev, in his State of the Nation speech. n
INVEST IN KAZAKHSTAN 2011

37

38

OVERVIEW

Enhanced links boost
trade opportunities
By building stronger economic
relations with other countries, both
near and further aﬁeld, Kazakhstan
is attracting more foreign direct
investment and positive growth.
By Tim Gosling

efore independence,
Kazakhstan’s trade of mainly
metals and ores, wheat and a
modest quantity of oil was
dictated from Moscow, with
most roads leading north. The border with
China was sealed. Twenty years later, with
commodities powering economic growth of
eight to nine percent each year, the Kazakh
government is working to diversify the
economy, and the country now offers a
spectrum of opportunities for investment
and trade in non-energy sectors.

B

Trade surplus
Apart from a temporary setback in 2009,
provoked by the global economic crisis,
Kazakhstan has seen its foreign trade expand
aggressively every year since 2000, when
total exports were just $9.86 billion,
according to the United Nations. By 2005,
that ﬁgure had leapt to $30.5 billion, and
then to $60 billion in 2010. That year,
Kazakh exports and imports of merchandise
totaled $90 billion – illustrating the strong
trade surplus that the country enjoys.
Due to Kazakhstan’s rapid development
of its oil and gas deposits – as well as the
infrastructure to export it – energy leads the
INVEST IN KAZAKHSTAN 2011

country’s trade ties. Oil and oil products
accounted for 59 percent of exports in 2009.
The country’s traditional role as a supplier of
metals and ores remains strong, too, with this
sector making up 19 percent of exports.
However, the government’s efforts to boost the
chemicals industry are paying off, with the
sector accounting for ﬁve percent of the
export market. Foreign sales of machinery are
weighing in at three percent, while grain is
becoming a staple of foreign trade.

Widening the net
Powering this boom in foreign trade is
Kazakhstan’s widening economic relations
with countries both Asian and European, on
top of the strong ties it retains with the other
members of the Commonwealth of
Independent States (CIS).
China is a leading light, and last year for
the ﬁrst time became the number-one export
destination for Kazakh goods. Kazakhstan’s
eastern neighbor absorbed 17.1 percent of
Kazakh exports, as it looked to Astana to help
build the Xinjiang region into an industrial
hub. The same year, Italy took 16.2 percent
of Kazakh exports, with Russia the third
biggest importer at 8.1 percent.
However, there are many other countries
increasing trade with Kazakhstan, as Astana
looks to forge stronger commercial ties with
Asian powerhouses such as India (0.4 percent
of foreign trade in 2009) and South Korea
(0.7 percent). Reﬂecting this strategy, Grigoriy
Marchenko, chairman of the National Bank of
Kazakhstan (NBK), said in January that the
country was close to signing a currency swap

OVERVIEW

Tengiz oil and gas reﬁnery plant
in western Kazakhstan. Energy
leads the country’s trade ties, but
other sectors are expanding

INVEST IN KAZAKHSTAN 2011

39

OVERVIEW

8,151.6

Foreign direct investment in 2010 – top 12 originating countries ($m)

425.1

436.5

United States

479.4

Canada

603.3

Switzerland

609.8

Japan

715.7

Italy

832.2

British Virgin Islands

1,037.3

Russia

1,221.6

United Kingdom

1,495.4

China

Other

1,507.6

By far the largest slice of inﬂows
originated in the Netherlands,
although a large percentage can be
traced to corporates around Europe

France

Netherlands

40

Source: NBK

agreement with China to ease ﬁnancial transactions and trade
between the two countries, and a similar deal with South
Korea was in the works.
At the same time, trade with the developed world is
growing. The United States was Kazakhstan’s ﬁfth largest
partner in 2009, accounting for three percent of imports and
exports, according to the European Commission, while as a
bloc, the European Union is by far Kazakhstan’s biggest trade
partner, with 32 percent.

Investment shadowing trade
Not surprisingly, this boom in trade has sparked a similar
dynamic in foreign direct investment (FDI) ﬂows into
Kazakhstan over the past decade, as investors have rushed
to pump cash into the country’s developing sectors. In 2006,
FDI inﬂows totaled $6.3 billion, according to the UN, but
had swollen to $15.8 billion by 2008, with the uplift being
particularly driven by oil and gas investments. According to
INVEST IN KAZAKHSTAN 2011

the NBK, 2010 saw a huge rebound after a disappointing
2009, with FDI of $20 billion.
By far the largest slice of those inﬂows ($8.1 billion)
originated in the Netherlands, although a large percentage
can be traced to corporates around Europe. Investments
ofﬁcially originating in the Netherlands include those by
PricewaterhouseCoopers, AT&T and Unilever. In addition,
Royal Dutch Shell has a large investment in the Kashagan
oilﬁeld, while Dutch banks such as ABN Amro also made
signiﬁcant commitments.
France leads investors from outside the Netherlands –
a trend sealed by a meeting in October 2010 when French
president Nicolas Sarkozy visited Astana to agree $6 billion in
trade and investment deals with Kazakh president Nursultan
Nazarbayev. Among the 24 deals announced were contracts
with aerospace group EADS, engineering group Alstom and
energy ﬁrm Areva, which will build a nuclear materials
assembly plant in Kazakhstan. n

OVERVIEW

China becomes Kazakhstan’s leading trading partner
With a superpower on its
doorstep, Kazakhstan looks set to
reap dividends from its partnership
with its Eastern neighbor.
China’s government has set high
targets to develop its western
Xinjiang region into an industrial
hub, including $100 billion of
investment in 23 new infrastructure
projects. Kazakhstan will be a key
supplier for this huge scheme. The
country’s share of foreign trade in
the Xinjiang region in 2008 reached
40 percent, giving the Central Asian
nation unrivalled exposure to what
is expected to be one of China’s
fastest-growing regions.
Almost all Kazakhstan’s exports
to China are raw materials, and
China overtook Italy as the
country’s leading export partner in
2010, accounting for 17.1 percent
of all Kazakh exports. Oil and oil
products made up 45 percent of
exports in 2009. Mining products
– ore, slag and ash – accounted
for 16 percent; iron-based metals,
15 percent; copper and brassware,
13 percent; and chemicals, seven
percent. Kazakhstan’s share of
imports varies from 10 percent to
60 percent of total Chinese imports
across different product types.
Large-scale investment in
Kazakhstan appears to be part
of China’s global strategy to
secure energy sources for its
growing economy. China National
Petroleum Corporation (CNPC),
the state energy company, is the
largest corporate investor in
Kazakhstan, with investments
amounting to around $7 billion to
date. Total Chinese investment

over 1991-2010 reached
$13.5 billion, with the majority
directed to the energy sector and
energy-related services. Part of
this funding was provided in the
form of loans and credits, giving
China access to Kazakhstan’s
mineral resource base.
Investment from Asia is not
restricted to China, however.
Japan, India and South Korea are
becoming increasingly important
partners. The state nuclear holding
company, Kazatomprom, teamed up
with Toshiba and Sumitomo in 2010
to mine rare earths in ventures
worth $300 million, while Japanese
companies have been busy looking
at Kazakh agribusiness.
India has held state-level talks
on civil nuclear cooperation, while
PNB – which became the ﬁrst
Indian bank to enter the Kazakh
market when it bought Dana Bank
in December – plans to expand its
network, and said in February
that: “The close relationship
between India and Kazakhstan is
one of the factors in our decision
to [come to Kazakhstan].”
Meanwhile, in April, LG Chem –
one of South Korea’s largest
chemical manufacturers –
announced plans to invest up to
$1.3 billion in the second stage of
an integrated chemical complex in
the Atyrau region of Kazakhstan.
When it comes to sectors,
investment ﬂows remain dominated
by oil and gas projects, which took
in close to half of foreign direct
investment (FDI) in 2010. Mining
took a large chunk out of the total,
but manufacturing (including

chemicals), retail and transport
and communications infrastructure
all attracted healthy volumes, too.
This pattern reﬂects the
government’s recognition that it
needs to use the opportunity
offered by energy-powered
growth to diversify the economy.
Kazakhstan launched a long-term
project for Diversiﬁcation of
Kazakhstan’s Economy in 2004. The
European Bank for Reconstruction
and Development announced it was
willing to invest $1 billion to help
the program in 2010.
This strategy should open further
trade and investment opportunities.
As the Organization for Economic
Cooperation and Development says:
“Kazakhstan has clear
competitive advantages in
non-energy sectors,” identifying
agriculture, chemicals and
information technology (IT) as
among the most promising.
Kazakhstan’s agricultural
sector has extensive arable land
resources, high regional demand
prospects, growing domestic
consumption and an absence of
distorting government support in
most agribusiness sectors.
Speciﬁcally, the grain, meat and
dairy subsectors are where
Kazakhstan shows the greatest
potential to successfully compete
on global markets.
The largest of the agrichemicals
sectors in terms of volume and
market value is the mineral
fertilizers sector. Kazakhstan has
all the basics in place for
developing its fertilizer production:
deposits of four billion to 15 billion

tons of phosphate rock, signiﬁcant
reserves of natural gas and sulfur,
and low-cost access to ammonia.
Moreover, with a low current level
of fertilizer use, the country’s large
potential domestic market remains
untapped. It also has major market
opportunities in the growing
neighboring economies of Central
Asia, China and India.
The IT sector in Kazakhstan is
nurtured by domestic demand and
global requirements, but is still
relatively small. The country has
strong potential for the provision
of IT outsourcing. The government

of Kazakhstan has made a
commitment to enhance
education, particularly in IT. With
the low cost of labor compared
with key regional competitors such
as Russia and existing skill levels,
the IT sector is taking advantage
of strong demand for its services
from government, local businesses
and foreign investors already
based in Kazakhstan. A high level
of broadband penetration and
mobile connection compared with
its neighbors also make
Kazakhstan a potential platform
for IT businesses in Central Asia.
INVEST IN KAZAKHSTAN 2011

41

42

OVERVIEW

Leadership in conﬂict resolution
Kazakhstan’s stewardship of the Organization
for Security and Cooperation in Europe (OSCE)
reinvigorated the search for peaceful solutions
to frozen conﬂicts. The country is continuing its
leadership role as chair of the body’s Forum for
Security Cooperation, which will carry on its
work on conﬂict resolution – particularly in
former Soviet countries. By Nora FitzGerald

azakhstan has seen a banner year in foreign
affairs after its successful chairmanship of the
Organization for Security and Cooperation in
Europe (OSCE), the premier regional security
organization on the Eurasian continent.
The country was the ﬁrst post-Soviet republic to chair the
56-nation organization and it went on to host the ﬁrst OSCE
summit in 11 years, which culminated in a two-day meeting
held in Astana in December. Kazakhstan, as OSCE chair, also
had a major role in alleviating a violent uprising in neighboring
Kyrgyzstan, and brought some largely forgotten conﬂicts in the
former Soviet Union back onto the international agenda.
“We realize that the way to a true Euro-Atlantic and
Eurasian community with united and indivisible security will be
long and thorny,” said Kazakhstan president Nursultan
Nazarbayev. “We intend to raise the level and quality of security
and understanding between our states and peoples.”
Kazakhstan’s push for the chairmanship of the OSCE was
backed by Germany, Russia and Spain, despite some initial
skepticism about the ability of a ﬂedgling democracy of
16 million people in Central Asia to handle the responsibility.
By the end of 2010, as Kazakhstan was handing over the
chairmanship to Lithuania, there were widespread plaudits for
its skillful diplomacy, which came to the fore during the Kyrgyz
crisis – a conﬂict that threatened to descend into civil war.
Kazakhstan – working with the US and Russia – was
critical to a negotiated settlement between the then-president
Kurmanbek Bakiyev and Roza Otunbyeva, who led the revolt
against him and subsequently became president. Kazakhstan

K

INVEST IN KAZAKHSTAN 2011

also helped to organize the dispatching of a group of unarmed
police ofﬁcers, hailing from across the OSCE, to continue
monitoring events on the ground in Kyrgyzstan.
Julie Finley, a former US ambassador to the OSCE who
initially opposed Kazakhstan’s bid, said she was impressed with
the country’s stepping out as a major player in international
affairs. “Kazakhstan has knocked my socks off,” she said at a
conference at the Center for Security and International Studies
in Washington DC. “It has been open and outgoing in its
leadership. It has been centered on what has been going on in
Kyrgyzstan. It has been solid and professional from the get-go.”
Kazakhstan held more than 150 events associated with its
chairmanship, and the country’s Foreign Minister and OSCE
chairperson-in-ofﬁce Kanat Saudabayev made more than 40
visits to various countries and regions.
The crowning glory of Kazakhstan’s chairmanship was the
summit in Astana, the country’s glittering capital. The summit
did not reach a ﬁnal agreement on conﬂict resolution, an effort
that Kazakhstan focused on the so-called frozen conﬂicts in the
former Soviet Union. Before the summit, Chairman Saudabayev
had visited the breakaway territories of South Ossetia and
Abkhazia in Georgia, as well as the disputed territory of
Nagorno-Karabakh between Armenia and Azerbaijan, and the
separatist region of Transdniestr in Moldova.
Despite Kazakhstan’s best efforts, the positions of some of
the other member states were too intractable to allow for a
diplomatic breakthrough. There were stand-offs between the US
and Russia over Georgia, and between Armenia and Azerbaijan
over Nagorno-Karabakh. Nonetheless, Kazakhstan’s efforts gave
new life to the search for peaceful solutions to these protracted
and debilitating conﬂicts. This year, Kazakhstan will build on its
leadership role within the OSCE as chair of the body’s Forum for
Security Cooperation, which will continue the country’s work on
conﬂict resolution, particularly in the former Soviet Union.
President Nazarbayev also tabled a series of less
contentious proposals, such as creating an ecological forum
and a body to help ﬁght transnational crime – items that will
form part of the OSCE’s agenda in 2011. Kazakhstan will
remain deeply involved in the OSCE’s leadership group as a

OVERVIEW

President Nazarbayev welcomes
US Secretary of State Hillary Clinton
to the OSCE Summit in Astana

“Kazakhstan has been open and outgoing in
its leadership. It has been centered on what
has been going on in Kyrgyzstan. It has been
solid and professional from the get-go.”
Julie Finley, former US ambassador to the OSCE
INVEST IN KAZAKHSTAN 2011

43

44

OVERVIEW

Yerzhan Kazykhanov, Foreign Minister of the Republic of Kazakhstan
Kazakhstan has maintained
excellent relations with its
traditional partners, Russia and
Central Asian countries, while
forging new relationships with
countries further aﬁeld, particularly
in Europe, Asia and America.
I am pleased to say that
Kazakhstan’s international proﬁle
has soared recently, as it held the
rotating presidency of the
Organization for Security and
Cooperation in Europe (OSCE) in
2010, and this year is chair of the
Shanghai Cooperation Organisation
(SCO) and president of the
Organization of Islamic
Cooperation (OIC).
Our contributions to regional
security include the Kazakh
government’s assistance to
Afghanistan, supplying food and
rebuilding infrastructure. We have
also agreed to pay $50 million to

fund the education of Afghans in
disciplines needed in the country.
Kazakhstan’s positive
international image has helped us
to demonstrate to investors what
the country has to offer, both in
terms of economic potential and
the business climate. Since
independence Kazakhstan has been
open to foreign investors, and has
seen major commitments by
companies from the US, Russia,
China, France, the United Kingdom
and other parts of the world.
Thanks to our good relations
with our neighbors, we are an
important state for transit. We
are investing in new road and rail
links, with new lines to China, and
to Iran via Turkmenistan due to
open in 2011. We also serve as a
transit state for oil and gas
exports from our Central Asian
neighbors to Russia and China,

member of the Troika, which also includes the current chair,
Lithuania, and the 2012 chair, Ireland.
President Nazarbayev says Kazakhstan’s chairmanship of
the OSCE was a rich experience, not only for the country’s leaders
and diplomats, but also for its people. “The OSCE summit in
Astana has positively inﬂuenced Kazakhstan. It has united our
nation, strengthened belief in our ability to resolve incredibly
difﬁcult challenges and achieve our highest goals,” he says.
Kazakhstan also focused on security in Afghanistan, and
increased its role in assisting the international coalition led by
the US. Kazakhstan expanded its post-2001 grant of over-ﬂight
rights to include military supplies and personnel, not just
non-lethal cargo. And in November, it agreed to send a
contingent of troops and instructors to Afghanistan.
This year, Kazakhstan is continuing its international
leadership role as it assumes the chairmanship of the Ministerial
Conference of the 57-member Organization of the Islamic
Conference (OIC). This position again places the country in a
INVEST IN KAZAKHSTAN 2011

as well as exporting our own
oil and gas.
Our links within the Eurasian
region have intensiﬁed recently
with the launch of the Customs
Union in July 2010. Alongside
Russia and Belarus, Kazakhstan
was a founding member of the
union, which will give investors
access to a market of over
160 million people. In future, the
Customs Union is expected to
expand geographically and, at the
same time, to evolve into a
Eurasian Economic Union.
Kazakhstan has also been
building links with countries in the
Islamic world. The country has
adopted the theme ‘Peace,
Cooperation and Development’ for
its chairmanship of the OIC, to
reﬂect the priority issues of the OIC
member states. Within Kazakhstan,
legislation on Islamic ﬁnance was

adopted in 2009, and Kazakhstan is
well on its way to becoming a
regional centre for Islamic, as well
as traditional, ﬁnance.
Perhaps most signiﬁcant is
our commitment to tolerance.
Kazakhstan’s ﬁrm policy is to be
open to all religions and ethnic
groups, and we have three times
hosted the triennial Congress of
World and Traditional Religions, to
promote peace and understanding
among religious faiths.

leadership position to help resolve some of the most contentious
international debates in the period after the ‘Arab Spring’. As a
largely Muslim nation, Kazakhstan will continue to stress – as it
did during its OSCE chairmanship – the need for inter-regional
and inter-faith dialogue. Therefore, at the OIC Ministerial
meeting on June 28-30, 2011, the Organization changed its
name to the Organization of Islamic Cooperation. At the
meeting, President Nazarbayev shared his vision for the Islamic
countries to stay on the path of peace, modernization, scientiﬁc
and technological development and education. He said that to
ensure long-term peace, the Islamic world should learn to
confront religious fundamentalism as a political ideology and
establish an open and honest dialogue with the West.
Foreign Minister Saudabaev says international cooperation
can only succeed through the “constant exchange of ideas”
across borders. Indeed, as President Nazarbayev noted at the
end of the Astana OSCE summit: “Winston Churchill famously
said: ‘To jaw-jaw is always better than to war-war.’” n

OVERVIEW

A gas pipeline near Almaty. The state oil
and gas giant is a fund subsidiary

Evolution of role sees
fund gearing up for
‘People’s IPO’
The heart of Kazakhstan’s economy,
Samruk-Kazyna has, since its inception, played
a crucial role in the country’s industry and
economy. Now the fund is ready to ﬂoat some
of its assets at discounted prices to retail
investors. By Clare Nuttall

azakhstan’s sovereign wealth fund
Samruk-Kazyna put to work billions of US dollars
to support the economy during the global
economic crisis. With Kazakhstan growing
strongly, the fund’s role has evolved – it is now
responsible for creating new industries and increasing
efﬁciency in the economy’s most important companies.
This year will see further dramatic changes, as minority

K

stakes in some of its largest and most attractive companies
are ﬂoated on the domestic stock exchange.
Samruk-Kazyna was created in the depths of the crisis
through the merger of two existing organizations – holding
company Samruk and investment company Kazyna – in
October 2008, and its importance to the Kazakh economy
cannot be overestimated. Its subsidiary companies include the
national rail and postal companies, electricity grid operator
Kegoc, state oil-and-gas giant National Company
KazMunaiGas, nuclear company Kazatomprom, national air
carrier Air Astana, and three of the top four banks. It is also
the parent of the Damu small enterprise fund, private equity
fund of funds Kazyna Capital Management, and other
ﬁnancial organizations.
Overall, Samruk-Kazyna manages assets worth in excess
of $70 billion, accounting for around 40 percent of the
INVEST IN KAZAKHSTAN 2011

45

46

OVERVIEW

In addition to raising funds for expansion, the ‘People’s IPO’
is also intended to stimulate the domestic capital market
economic activity in the country. It has a total of 404
subsidiaries and afﬁliated companies.
As of March 2010, Samruk-Kazyna announced it had
invested KZT897 billion ($6.1 billion) from Kazakhstan’s
National Fund to support the economy during the crisis. Its
largest ﬁnancial commitment was to the banking sector,
where it invested some KZT486 billion.
Other anti-crisis measures included supporting the
real-estate sector (KZT360 billion), support for small and
medium-sized enterprises (KZT120 billion) and implementing
industrial and infrastructure projects (KZT121.5 billion).
Samruk-Kazyna became the majority shareholder of
BTA Bank and Alliance Bank, injecting liquidity when both
were on the brink of collapse in February 2009. Today, a debt
restructuring for the two banks has been agreed with creditors.
At the same time, the fund took minority stakes in Kazakhstan’s
other big-four banks, Halyk Bank and Kazkommertsbank.
Now that GDP growth in Kazakhstan has returned to
pre-crisis levels, Samruk-Kazyna is starting to divest some
of the assets it acquired during the crisis. The fund has
already exited its investment in Halyk, selling the stake
back to the bank and its majority shareholder Almex.
Kazkommertsbank could buy back its shareholding in the
near future. A sale of BTA to Russia’s Sberbank is still on the
cards and Samruk-Kazyna is also looking at potential exit
routes for Alliance, but it is adamant that it will sell its
shareholdings only if the price is right.
Post crisis, Samruk-Kazyna is involved in raising the
efﬁciency of its subsidiaries, and is the main conduit for big
foreign investment projects. The emphasis within Kazakhstan
has shifted toward production of processed and value-added
products, rather than being purely a supplier of raw materials.
Several of the priority projects within the 2010-14
Accelerated Industrial and Innovative Development program
are aimed at achieving this goal.
Samruk-Kazyna is already working to diversify and
industrialize Kazakhstan. The ‘breakthrough projects’ under
the Samruk-Kazyna umbrella include reconstruction of the
Atyrau reﬁnery, modernization of the national electricity grid
and construction of several new power stations.
INVEST IN KAZAKHSTAN 2011

Within Samruk-Kazyna, two holding companies created in
late 2008 are responsible for the chemicals and metals sectors,
respectively. The United Chemicals Company was set up to
develop a national chemicals industry and reduce Kazakhstan’s
dependence on imports of products such as fertilizers. Tau Ken
Samruk is the holding company for the Kazakh government’s
stakes in metals and mining companies. While oil and gas still
account for the lion’s share of Kazakhstan’s exports, metals
and mining have been growing in importance in recent years.
Soaring metals prices, and the steady growth in demand from
neighboring China in particular, have provided an impetus for
Kazakhstan to increase its output.
The government stakes in two major London Stock
Exchange-listed mining companies – Eurasian Natural
Resources Company (ENRC) and Kazakhmys – are held within
Tau Ken Samruk. Both companies have an immense presence
in the Kazakhstan mining sector, as well as internationally.
Kazakhmys is the largest copper producer in Kazakhstan and
one of the top 10 producers worldwide. ENRC – a diversiﬁed
natural resources group – has a presence in China, Russia,
Brazil and Africa, as well as in Kazakhstan.
This year has already seen signiﬁcant changes for
Samruk-Kazyna. On April 12, Timur Kulibayev was promoted to
chairman as part of the post-elections reshufﬂe. Kulibayev, the
son-in-law of Kazakh president Nursultan Nazarbayev, was
previously the company’s deputy chairman.
The fund’s main task this year will be to carry out the
‘People’s IPO’ program, under which shares in companies that
are wholly or partly owned by Samruk-Kazyna will be offered at
a discount to retail investors and pension funds. In addition to
raising funds for expansion, the program is also intended to
stimulate the domestic capital market.
At least some of the IPOs are due to take place by the
end of this year. Companies expected to be part of the ﬁrst
wave of IPOs include power-generation company
Samruk-Energo, electricity grid operator Kegoc, postal service
Kazpost and KazMunaiGas Exploration and Production. In the
following two years, IPOs of other companies – including
Kazatomprom, National Company KazMunaiGas, and railway
operator Kazakhstan Temir Zholy – are planned. n

OVERVIEW

Minerals tax freeze
is welcome news
for investors
While the Kazakh government seeks an extra
$2.9 billion to cover the 2008-09 bank bailouts,
it wonâ&#x20AC;&#x2122;t do so by raising mineral resource rent
taxes. One ingenious scheme involves the
setting up of a Distressed Asset Fund â&#x20AC;&#x201C; to
purchase bad loans from the banking sector
and free up liquidity. By Nicholas Watson

azakhstan has made steady progress in
reforming its tax system for companies operating
in the country over the past few years. However,
the fallout from the global economic crisis has
postponed further cuts in tax rates.
In November, Finance Minister Bolat Zhamishev said
that the government would not, as previously planned, cut the
corporate income tax from its current 20 percent, but maintain
that rate until 2013, as it needs to boost revenues in order to
shore up the budget. In 2009, Kazakhstan slashed corporate
tax to 20 percent from 30 percent, and at that time said it
planned to lower it further over the next two years.

K

INVEST IN KAZAKHSTAN 2011

47

48

OVERVIEW

The Distressed Asset Fund would allow use of the free
liquidity from commercial banks to buy debt securities
“We support continued decrease of the tax burden. But
since the crisis, it has become obvious that it is impossible to
cut taxes sharply,” Zhamishev told reporters after the
legislature voted to approve the government’s tax bill.

Positive response to revised plan
As a result of postponing the corporate tax cut, the government
has decided to leave mineral resource rent taxes unchanged
instead of raising them as planned – news that was greeted
warmly by investors and was considered crucially important to
investors in oil and gas, as well as mining. “Because corporate
income tax is not lowered, the rates of mineral resource rent
tax will remain unchanged,” said Zhamishev.
The US consultancy IHS Global Insight says the
welcome news goes some way to dispelling the idea that
the government is slowly increasing its share in companies’
proﬁts, especially on the crucial oil and gas industry, to
boost state income.
In the summer of 2010, the government said it planned
to introduce a further increase in export taxes on crude oil in
2011. Zhamishev said that the new tax would be doubled from
the current $20 per ton to $40 per ton, which analysts say
would produce an extra $2.9 billion in taxes a year.
There is no indication of whether any of the major
foreign energy companies operating in the country under
Ministers and ofﬁcials from
Kazakhstan and other Central
Asian countries attended a 2008
OECD/OSCE conference on
competitiveness in the region

INVEST IN KAZAKHSTAN 2011

production-sharing agreements (PSAs) – such as Chevron
or Eni BG Group – will be excluded from the proposed tax
increase. They are already attempting to negotiate over
payment of the initial 20 percent export tax increase that
was introduced in July 2010.
However, these big companies’ efforts to invoke the ‘tax
stabilization provisions’ of the PSAs signed with the Kazakh
government in the 1990s or early 2000s are not likely to be
successful, according to analysts.
“The government certainly needs an extra $2.9 billion
to cover costly bank bailouts during the 2008-09
recession,” says a representative from Global Insight.
In the banking sector, the National Bank of the Republic
of Kazakhstan (NBRK) stated in April that it is aiming to
introduce a mechanism to clean up the balance sheets of
Kazakh banks – possibly as soon as July 1. Grigoriy
Marchenko, the governor of the NBRK, said the new
mechanism, which would clear bad loans from the banks’
balance sheets, is currently in a stage that requires
amendments to the Tax Code.
Marchenko also added that if, for some reason, the new
model failed to start its work in July, then it would be launched
in January 2012. The Financial Institutions Association of
Kazakhstan, the Ministry of Finance, auditors and commercial
banks are currently involved in the project.
The NBRK and the Agency of the
Republic of Kazakhstan on Regulation and
Supervision of Financial Markets and
Financial Organizations (AFN) are discussing
the possibility of creating a special company,
the Distressed Asset Fund. The Fund would
buy out bad loans from commercial banks,
thereby allowing use of the free liquidity from
commercial banks to buy debt securities
issued by DAF, while DAF would use the
proceeds to buy out bad loans from banks.
“We believe that if the mechanism is
launched in 2011, it could possibly be a
positive milestone for the sector,” says the
Kazakh investment bank Visor Capital. n

50

OVERVIEW

All for one, one for all
The presidents of Kazakhstan, Russia
and Belarus attended a customs union
summit in Moscow in 2010. From left
to right: Nursultan Nazarbayev, Dmitry
Medvedev and Alexander Lukashenko

By joining a single, regional market,
Kazakhstan, Belarus and Russia aim to
eliminate obstacles to trade and investment,
and ultimately free up the movement of
labor and capital. By Ben Aris

ne of the fastest ways to increase the wealth of
a country is to concentrate on your comparative
advantage and trade with your neighbors. In
this way, a country will put most of its effort
into what it is good at.
On January 1, 2011, a new customs union between
Kazakhstan, Belarus and Russia came into being – part of the
grander plan to create a common economic space between
the three countries. The customs union creates a single market,
that will change the nature of trade in the region and accelerate
growth in the member countries.

O

INVEST IN KAZAKHSTAN 2011

The agreement is the culmination of almost two
decades of work. Celebrated with much fanfare in the
Kazakh capital of Astana, the union eliminates obstacles
to trade and investment that went up after the collapse of
the Soviet Union, as well as reducing the duties and
documentation needed to trade between the three countries.
Border controls in airports between the members have
already been largely removed.
However, getting this far has not been easy, and the
agreement remains a work in progress. In 1994, the
countries of the Commonwealth of Independent States (CIS)
decided to create a free trade area, but the agreements were
never signed. Still, this discussion did result in the creation
of a Eurasian economic community treaty – signed by the
presidents of the Republic of Belarus, the Republic of
Kazakhstan, the Kyrgyz Republic, the Russian Federation and
the Republic of Tajikistan in Astana on October 10, 2000 –
which forms the basis of the new trade agreement.

OVERVIEW

A second attempt to create a customs
union met with more luck. An agreement in
principle to create a common economic
space was announced after a meeting in the
Moscow suburb of Novo-Ogarevo on February
23, 2003. Initially, Ukraine was invited to
join, but it pulled out after the Orange
Revolution in 2006, leaving the other three
countries – Belarus, Russia and Kazakhstan
– to go ahead and sign the deal in 2009.
The union is now a reality, and the
participating states are due to remove the
last of their customs borders on July 1,
2011. By January 1, 2012, the integration
of the three countries to create a common
economic space will be complete. The ﬁrst
step is harmonizing customs rules, and the
next will be a discussion on the free
movement of labor and capital.
At the signing ceremony at the start of
this year, Russian president Dmitry Medvedev
said that the three countries were committed
to fully opening their economies by the
beginning of 2012. “A lot of work remains
before the formation of a common economic
space, but, considering that it is a beneﬁcial
and interesting endeavor, I’m sure we can
agree on everything.”

Beneﬁts of the union
The economies of the three members of the
union are very different, which means
improving trade ties should deliver big
economic beneﬁts to all of them.
Kazakhstan sells minerals such as ores,
metal products and chemicals to Russia,
while importing other minerals, chemicals,
metals and machinery. Belarus imports
Russian oil, gas and metals and machinery,
and sells trucks, car parts, tires, dairy
products, poultry, and meat to Russia.
Initially Russian farmers could suffer
from competition from Belarus, and Russian
steel workers could suffer from competition
from Kazakhstan. But in the long term, the
exposure to competition will help both
Kazakhstan and Russia diversify away from

their dependence on natural resources –
a goal that both countries have in common –
by increasing the importance of value-added
production, say experts.
All three countries are struggling with
issues of modernisation and reform, and the
union will increase competition in their
markets – the most effective force for
pushing through reforms.
“The establishment of a
Belarusian-Russian-Kazakh customs union
will enable the three countries to have GDP
growth over 15 percent by 2015,” Kazakh
president Nazarbayev has forecast. “There
will be higher competition in the markets of
all the three countries, which should affect
the quality of goods produced,” he said in
a speech in 2010.
The president also predicts that the
single market will prove attractive for
investors. It offers a combined population of
170 million, aggregate industrial potential of
$600 billion, oil reserves of 90 billion barrels,
and agricultural production of $112 billion.
The trio’s aggregate GDP makes up $2 trillion,
and aggregate trade $900 billion.
One of the sectors that will see the
most beneﬁt is agriculture, and the president
hopes that together the Customs Union
countries could become the leader of the
global grain market. “Our three countries are
responsible for 17 percent of the world’s
wheat exports,” he said. With European
agriculture largely saturated, the majority of
production growth in Eurasia in the medium
term will come from this region.
“We believe Ukraine, Kazakhstan,
Russia, and Belarus have great prospects if
they form a customs union,” said Russian
deputy prime minister Igor Shuvalov at the
end of 2010. “That will make them the main
nucleus of food security in the world. Our
countries will be a powerful food player.”
This impressive potential is attracting
new recruits even before the union is fully
functional, with the likes of Kyrgyzstan and
Tajikistan now lining up to join. n

Single-market
potential

$600 billion
Aggregate industrial potential

90 billion
barrels
Oil reserves

$112 billion
Agricultural production

INVEST IN KAZAKHSTAN 2011

51

52

OIL, GAS AND MINING

Increasing global
presence in energy
and mineral exports

In recent years, Kazakhstan has become
the worldâ&#x20AC;&#x2122;s largest producer of uranium,
of which it holds considerable deposits

INVEST IN KAZAKHSTAN 2011

OIL, GAS AND MINING

Sitting on a wealth of minerals and energy
resources, Kazakhstan’s star is ascendant as
China’s appetite for oil and related products
shows no sign of abating. By Nicholas Watson

orecasts for Kazakhstan’s GDP growth in 2011 are
in the four to six percent range and most of this
growth, just as in 2010, will come from the two
sectors that dominate the Kazakh economy: The oil
and gas, and metals and mining sectors.
The world’s ninth largest country by territory, Kazakhstan
sits on vast deposits of largely untapped energy and mineral
resources, providing many investment opportunities.
Kazakhstan’s main resource is crude oil, of which it has
proven reserves of three percent of the world’s total. Oil
accounts for 63 percent of exports and 50 percent of
industrial production, and the inﬂuence of the oil
price on economic performance is strong. The
country is expected to increase its role as one
of the key non-OPEC oil exporters: its
reserves-to-production ratio is second only to
Middle Eastern countries. Daily oil production
amounted to 1.5 million barrels in 2009,
which is more than Qatar or Indonesia, and
with the Kashagan oilﬁeld (considered the
world’s largest discovery of the past 30 years)
due to come on stream in 2013, Kazakhstan is
poised to become a top-10 global producer.
As well as oil, Kazakhstan also holds 20 percent of the
world’s gold, 17 percent of its uranium (Kazakhstan overtook
Canada as the world’s largest producer of uranium in 2009),
7.6 percent of zinc and two percent of copper.

F

Unsurprisingly, resources account for almost 100 percent
of export volumes to China. Oil and related products comprised
56 percent of Kazakhstan’s exports to China in the ﬁrst 10
months of 2010. Mining products – ore, slag and ash – made
up 14 percent; copper and brassware for 13.7 percent;
chemicals and isotopes for 7.3 percent; iron and steel for
5.8 percent; and zinc and aluminum for 1.5 percent each.
The surge in exports to China is due mainly to the opening
of the Kazakhstan-China crude-oil pipeline, which in 2010
reached its designed capacity of 10 million tons per year. Its
capacity will rise to 20 million tons annually on completion of
the second phase of construction in 2013. Construction of the
Western Europe-Western China highway and the planned rail
link from Zhetigen near Almaty to the Chinese border will allow
Kazakhstan to further increase its exports to its neighbor.
Most foreign investment in Kazakhstan is being directed
towards oil- and gas-related activities, which constituted more

It is Kazakhstan’s role as one
of the key suppliers to China
that makes it such an interesting
investment prospect

Central to global recovery
Strategically located between East and West, Kazakhstan is
hardwired into the recovery of the global economy. However,
it is the country’s role as one of the key suppliers to China,
the roaring engine of the global economy, that makes it such
an interesting investment prospect.
For the ﬁrst time in the trading history of Kazakhstan and
China, the latter has become the number-one export destination
for Kazakh goods. China increased its imports from Kazakhstan
to more than $9 billion in 2010 from $5.9 billion in 2009, the
highest import volume in their trading history. In the ﬁrst 11
months of 2010, China accounted for 17.6 percent of Kazakh
exports, overtaking Italy (16 percent) and Russia (5.9 percent).

than half of total investment inﬂows in 2009. Foreign
investment is expected to grow signiﬁcantly when production
in Kashagan begins. Development of the country’s export
capacity and export routes are expected to bring in some
$30 billion over the next ﬁve to seven years, according to
estimates. The sources of foreign direct investment are
increasingly diversiﬁed, with the main ﬂows coming from
Russia, China, the United Kingdom, Canada, South Korea,
Poland and Sweden, with Russia and China dominating.
A number of companies within the Samruk-Kazyna state
holding company are expected to ﬂoat initial public offerings
(IPOs), starting this year – a potential boon for investors. Assets
that Samruk-Kazyna has already indicated it may ﬂoat include
National Company KazMunaiGas, rail operator Kazakhstan
Temir Zholy and the Development Bank of Kazakhstan. A list
of those that will list shares is likely to be released later this
year. “The government has a very low level of debt. Investors
are looking at quasi-sovereign companies and anything owned
by the state, as these look virtually risk-free and are quite
INVEST IN KAZAKHSTAN 2011

53

54

OIL, GAS AND MINING

Message from Sauat Mynbaev – Minister of Oil and Gas
Kazakhstan is one of the
countries that have strategic
reserves of hydrocarbons and
can impact world energy
resources. Unrecovered,
potential hydrocarbon resources
in the Republic reach 17 billion
tons. Kazakhstan is among
15 leading countries with proven
oil reserves more than five billion
tons. Estimated gas reserves
are about 3.7 trillion cubic
meters, potential resources
reach 6-8 trillion cubic meters.
Therefore, Kazakhstan has
significant reserves of
hydrocarbons – 3.3 percent of
the world stock. The volume of
crude oil production in 2010 is
80 million tons and it is expected
to reach 81 million tons in 2011.
Kazakhstan is one of few
states in which the peak of oil
and gas production has yet to
come. At present, the North
Caspian Project is one of the
largest projects developing on
the Caspian shelf and worldwide.
To run this project, Kazakhstan
reached an agreement with
ExxonMobil, ConocoPhillips, Total,
Shell, Eni, Inpex and KazMunaiGaz
to form a new joint operating

company, North Caspian
Operating Company BV. Its assets
include the giant Kashagan field,
one of the largest petroleum
developments in the world, which
has recoverable oil reserves of
1.5 billion tons, and is expected
to produce 1.5 million barrels
a day in the future.
The plans for the oil and gas
industry go far beyond production.
Kazakhstan has upgraded and
reconstructed three oil refineries
in Atyrau, Pavlodar and Shymkent.
These would increase production
of light oil products, reduce any
negative impact on the
environment, improve the quality
of oil products up to Euro-4 and
Euro-5 standards and enable
the nation to fully cover the
domestic oil-products market
through local production.
Our country is of great
interest to foreign investors. The
reasons for this include access to
natural resources, the large size
of the market, the country’s
strategic location and its stable
political environment. Soon the
country will be among the top 10
exporters of hydrocarbons. The
volume of export capacity would

interesting yield wise,” said Milena Ivanova-Venturini, head of
research at Central Asia at Renaissance Capital.
The main purpose of the IPOs will be to raise money for
capital expenditure, and only minority stakes are expected to be
offered. Visor Capital estimates that to carry out all its mid-term
plans, KMG alone needs to raise around $10 billion. This
would cover building reﬁneries, expanding the pipeline network,
raising production at existing ﬁelds, and possibly buying further
stakes in Karachaganak Field and other oil and gas projects.
INVEST IN KAZAKHSTAN 2011

be increased through the
expansion of the Caspian Pipeline
Consortium (CPC) oil pipeline
network from 28 to 67 million
tons of oil a year. The maximum
capacity should be reached by
2015. Moreover, we work upon
other export routes, including
Transcaspian direction.
Baku-Tbilisi-Jeyhun pipeline will
help bring oil to the Black sea.
With Azerbaijan, a joint venture
will explore the feasibility of the
Trans-Caspian route.
The gas industry is an integral
part of the fuel and energy
complex of Kazakhstan. It includes
extraction, processing and
transportation of gas. The
Kazakhstan-China trunk gas
pipeline, which is a component of
a Turkmenistan-UzbekistanKazakhstan-China transnational
gas pipeline, was put into operation
in 2009. The first section of the
Kazakhstan-China gas pipeline
should reach the capacity of up to
30 billion cubic meters a year by
the end of 2012, with subsequent
expansion up to 40 billion cubic
meters a year. Construction of a
linear part of the second section
(Beiyneu-Shymkent) will start in

August this year. This gas pipeline
would provide energy security
and increase reliability of gas
supply to southern regions of the
Republic through delivering gas
from the fields located in western
regions. The end of construction
of the first stage of section two is
planned by the end of 2012.
The Government of Kazakhstan
is committed to increasing the
country’s investment appeal to
support development of this
sector, welcoming international
oil-and-gas companies and,
by doing so, expanding the
economy. The major international
companies that are working
together with KMG include
Chevron, CNPC, ENI and Shell.
The oil and gas industry is the
backbone of Kazakhstan’s
economy. Revenues from the
industry collected in the National
Fund allowed the government to
mitigate the impact of the recent
international economic crisis.
Post crisis, the success of this
sector is helping related
industries to grow and is
contributing to sustainable
economic growth and rising living
standards for the population.

Samruk-Kazyna will be the major source of IPOs going
forward, but a handful of independent companies could also
decide to list. Potash miner Satimola has said it is considering a
$100 million IPO in London during 2011. Several mining
companies have also indicated a desire to list in London. n
Nicholas Watson is an award-winning journalist and published
author. He is currently managing editor and co-founder of
Almaty-based magazine Business New Europe.

OIL, GAS AND MINING

Export volumes to China

1.5%
1.5%
zinc

5.8%
iron and steel

aluminum

7.3%
chemicals and
isotopes

56%

13.7%

Oil and oil
products

copper and
brassware

14%
mining products â&#x20AC;&#x201C;
ore, slag and ash

Kazakhstan-China crude oil pipeline

10 million tons

20 million tons

per year in 2010

per year by 2013

INVEST IN KAZAKHSTAN 2011

55

OIL, GAS AND MINING

Standing on a
wealth of resources

The majority of Kazakhstan’s oil and gas
reserves are onshore – avoiding the additional
expense and risks that are associated with
offshore drilling. By Nicholas Watson

lthough the giant Kashagan oilﬁeld in the
Caspian Sea attracts most of the attention,
more than half of Kazakhstan’s proven reserves
of 40 billion barrels of oil and 1.82 trillion cubic
meters of mostly associated gas are to be found
in onshore locations across Kazakhstan.
The eight largest, currently producing oil and gas ﬁelds
are located onshore, and account for about 80 percent of
production. The main oil and gas reserves are in the western

A
The Tenzig oil ﬁeld in western
Kazakhstan is one of the ﬁve main
oil and gas reserves in the area

INVEST IN KAZAKHSTAN 2011

57

OIL, GAS AND MINING

part of the country, where the ﬁve largest onshore ﬁelds –
Tengiz, Karachaganak, Aktobe, Mangistau and Uzen – are
located. The North and South Kumkol ﬁelds are in the southcentral area, while the Akshabulak ﬁeld is in the central area.
Tengiz is currently Kazakhstan’s largest producing
oilﬁeld, with recoverable reserves estimated at between
six billion and nine billion barrels, and it is the world’s
deepest operating giant ﬁeld at around 3,657 meters.
Tengizchevroil (TCO), the Chevron-led consortium developing
the ﬁeld, said in February that it increased oil output by
15 percent to 25.9 million metric tonnes in 2010. TCO –
in which Chevron has a 50 percent stake, Exxon Mobil owns
25 percent, KazMunaiGas (KMG) has 20 percent, and
LUKArco owns ﬁve percent – provides no estimate for 2011,
but is expected to submit an expansion plan for the project
soon, according to the Kazakh Minister for Oil and Gas, Sauat

of total gas production of just over 15 billion cubic meters was
ﬂared. The consortium re-injects most associated gas into the
ground to maintain crude wellhead pressure for liquids
extraction, and also uses the extracted gas as a power
generator for its facilities at Karachaganak. It also exports a
small amount across the border to Russia.
The consortium gave no reason for the fall in production,
though it has been involved in a dispute with the Kazakh
government over the last year concerning tax and
environmental claims. In August, both sides conﬁrmed they
were also negotiating the sale of a stake in the project to the
state-owned KMG (Karachaganak is the only major oil and
gas project in Kazakhstan without the participation of KMG).
KPO is a joint venture held by Eni and BG Group, both of
which hold a 32.5 percent stake; Chevron, owns 20 percent;
and Lukoil, has the remaining 15 percent.
Most of the other major ﬁelds have a
distinctly Chinese ﬂavour, reﬂecting that country’s
increasing clout in Kazakhstan. The Mangistau
oilﬁeld, which produced 115,000 barrels a day
(b/d) in 2009 and has reserves estimated at 500
million barrels, is operated jointly by KMG and
China National Petroleum Corporation (CNPC).
The Aktobe oilﬁeld, which produced 120,000 b/d
in 2009 and holds estimated reserves of more
than one billion barrels of oil, is 85 percent
owned by CNPC. North and South Kumkol each
produced about 65,000 b/d in 2008. The South
Kumkol ﬁelds are shared by CNPC (66.7 percent)
and KMG (33.3 percent). The North Kumkol
ﬁelds are shared equally by Lukoil and CNPC.
Akshabulak and surrounding ﬁelds in central
Kazakhstan produced 63,000 b/d in 2008 and are operated
jointly by KMG and PetroKazakhstan, 67 percent of which is
owned by Chinese interests.
Clearly, most of the international oil companies are
present in Kazakhstan, although investors will ﬁnd there are
a growing number of independent players developing smaller
oil and gas ﬁelds in the country.
In October 2010, the Canadian-listed Tethys Petroleum
raised $100m through a share placement, the proceeds of
which the company will use for exploration activities in
Kazakhstan, Uzbekistan, and Tajikistan. Its main oil and
gas assets are in Kazakhstan, in the North Ustyurt Basin
to the west of the Aral Sea, and adjacent to the proliﬁc
Pre-Caspian basin – home to the giant Tengiz, Kashagan
and Karachaganak ﬁelds. Then there’s the London Stock

Most of the international
oil companies are present in
Kazakhstan, although investors
will ﬁnd a growing number of
independent players developing
smaller oil and gas ﬁelds
Mynbayev. The new expansion phase – called the Future
Growth Project – should increase reserves by approximately
150 million metric tonnes and boost production by 12 million
metric tonnes of crude oil a year by 2016. TCO could
reportedly invest a total of $15.2 billion in the expansion.
The Karachaganak gas condensate ﬁeld, close to the
Russian border, holds reserves of almost nine billion barrels of
oil and gas condensate, and 1.2 trillion cubic meters of
natural gas, according to the Energy Information Agency (EIA).
Karachaganak Petroleum Operating (KPO), the Western-led
joint venture developing the ﬁeld, said in February 2011 that
its output fell four percent to 133.7 million barrels of oil
equivalent (boe) in 2010, from 139.4 million boe in 2009.
KPO said that last year it reached an overall gas
utilization rate of 99.87 percent, meaning that 0.13 percent

INVEST IN KAZAKHSTAN 2011

59

60

OIL, GAS AND MINING

Kazakhstan’s oil output could rise
from 1.6 million b/d in 2009 to hit
a plateau of four million b/d in 2025

Exchange’s AIM-listed Max Petroleum, which acquired the
exploration and production rights to the Blocks A&E license
area in 2005, including two onshore blocks in the Pre-Caspian
Basin. Out of 12,445 sq km, the company has covered
5,000 sq km with three-dimensional seismic surveys. It has
built an inventory of 13 shallow prospects, 10 deep prospects
and ﬁve deep leads, ranging in size from 100 million to
600 million boe of unrisked mean resource potential each,
giving total potential in excess of four billion boe.
AIM-listed Roxi Petroleum currently has interests in
four exploration and production contract areas spread over
three petroleum basins: the Pre-Caspian Basin and the
Mangyshlak Basin in western Kazakhstan, and the Turgai
Basin in central Kazakhstan.
INVEST IN KAZAKHSTAN 2011

Largely on the back of increased production from the
onshore Karachaganak and Tengiz ﬁelds, as well as the
offshore Kashagan ﬁeld, Kazakhstan’s output could rise from
1.6 million b/d in 2009 to hit a plateau of four million b/d in
2025. This means that the country will need to expand its
export capacity signiﬁcantly, because existing pipelines
currently handle just 1.5 million b/d. The International Energy
Agency suggests that a further two million b/d will be needed.
In 2010, Kazakhstan had net oil exports of about
1.7 million b/d, with current infrastructure delivering it to
world markets by pipelines to the Black Sea via Russia; by
barge and pipeline to the Mediterranean via Azerbaijan and
Turkey; by barge and rail to Batumi, Georgia on the Black Sea;
and by pipeline to China. n

OIL, GAS AND MINING

The Kashagan ﬁeld in the Caspian Sea holds
reserves of more than 10 billion barrels

Tapping the hidden
resources beneath
the Caspian

The Kazakh section of the Caspian Sea is set
to reveal the huge reserves hidden beneath
its waters. By Nicholas Watson

he Caspian Sea is estimated to be one of the
largest oil reserve regions in the world, and
Kazakhstan’s section of the Caspian Sea is
estimated to hold the largest reserves of any of
the littoral states. As such, the International
Energy Agency (IEA) expects resources from the Caspian
region, including Kazakhstan, to play an increasing role in
securing and diversifying Europe’s energy supplies.
The biggest ﬁeld being developed in the Kazakh sector of
the Caspian Sea is Kashagan, with approximately 35 billion
barrels of oil in place and reserves of over 10 billion barrels,
making it the world’s largest discovery of the past 30 years.

T

INVEST IN KAZAKHSTAN 2011

63

64

OIL, GAS AND MINING

However, big does not mean easy – the project is late and
overbudget because of the adverse operating environment
and other challenges. The ﬁeld contains a high proportion of
natural gas under very high pressure, the oil contains large
quantities of sulfur, and the offshore platforms require
construction that can withstand the extreme weather
ﬂuctuations in the northern Caspian Sea. One advantage,
however, is that the ﬁeld lies in waters only three to ﬁve
meters deep, and drilling and extraction operations will
proceed from artiﬁcial islands.
The latest estimate for the ﬁrst production to start
ﬂowing from the ﬁeld has been pushed back eight years
from the original schedule to 2013, while costs have soared
to $136 billion, from original estimates of $57 billion.
This has inevitably strained relations between the
international oil companies developing the ﬁeld and the Kazakh
government. The dispute over the delays and cost overruns
was resolved in late 2008, however, when the
shareholders – Eni, Shell, Total, Exxon Mobil,
ConocoPhillips and Inpex – agreed to give
up part of their stakes to KazMunaiGas
(KMG), which saw the state-owned
company’s interest rise from 8.33 percent
to 16.81 percent. Furthermore, a new
operating company called the North Caspian
Operating Company replaced the previous
operator, Eni subsidiary Agip KCO.
Initial production from phase one of
Kashagan is projected at 370,000-450,000
barrels a day (b/d), with peak production of
1.5 million b/d from phase two projected by
2019. However, the Ministry of Oil and Gas
rejected the development plan for that
second phase, due to the high costs, at the end of March.
According to reports, the Shell team planning the offshore
facilities of the second phase have slashed $18 billion from
the project costs to bringing them to an even $50 billion.
However, even with this reduction, it is claimed that the
second phase offers no more than a 9.3 percent return on
investment, so the government is looking for further cuts.

Kurmangazy the country’s third largest ﬁeld. That said, the
ﬁrst well – drilled in 2006 by project partners Rosneft and
KMG – came up dry. In October 2010, the two sides agreed
to extend the exploration contract and news is expected on
when the second well will be drilled.
Meanwhile, there has been growing excitement this
year about the prospects for another potential mega-ﬁeld:
the ‘N’ Block, located 30km south-west of the port of Aktau
and being developed by a consortium of KMG (51 percent),
ConocoPhillips (24.5 percent) and Mubadala (24.5 percent).
In January, KMG announced that the ﬁrst exploration well
detected hydrocarbons at several intervals before it was
completed in December. KMG said the ﬁeld could hold more
than 4.6 billion barrels of oil, as much of two billion barrels
of which could be recoverable. “This ﬁeld has the potential to
be the biggest discovery worldwide this year, if the pre-drill
estimates are proved correct,” believes Dominic Lewenz,
director of oil and gas research at the
regional investment bank Visor Capital.
Sources though, say the consortium
cannot yet declare it a formal discovery
because the engineers were forced to seal
the well before completing a ﬁnal conclusive
test. As such, the consortium has decided to
drill a second well in the same location later
this year to conﬁrm the result.

The ‘N’ Block
could hold
more than
two billion
barrels of
recoverable oil

The best of the rest
The Kurmangazy ﬁeld – located in the Caspian Sea on the
maritime border between Russia and Kazakhstan – is the least
developed of the country’s oilﬁeld projects. Its reserves were
initially estimated at between seven billion and 10 billion
barrels of crude oil equivalent, which, if proven, would make
INVEST IN KAZAKHSTAN 2011

BRIC arrivals

Russia’s Lukoil is exploring three offshore
ﬁelds with KMG – Tyub-Karagan, Atashsky
and Khvalynskoye – while Oman Pearls and
Shell are partners with KMG in exploring the
Zhemchuzhiny ﬁeld. In 2010, Lukoil started
commercial production at the Korchagin ﬁeld in Russia’s
section of the Caspian. It is hoped that the launch of Russia’s
ﬁrst major Caspian offshore project will provide fresh impetus
for developing the ﬁelds in the Kazakh sector of the sea.
In December, Indian oil secretary, Shri Sundareshan, said
Kazakhstan planned to transfer a 25 percent stake in the nearby
Satpayev Exploration Block to Indian oil ﬁrm ONGC, and the
agreement for the deal was signed in April 2011. The Satpayev
Block, in the Pre-Caspian Basin in Kazakhstan’s section of the
Caspian, covers 1,582 sq km, in waters just ﬁve to 10 meters
deep. The IEA estimates that the block could hold 1.6 billion
barrels – equivalent to around four percent of Kazakhstan’s total
proven oil reserves in 2009. The ﬁeld’s proximity to large ﬁelds
such as Kashagan indicates Satpayev’s signiﬁcant potential. n

ithout access to a seaport, Kazakhstan
depends mainly on pipelines to transport
its hydrocarbons to world markets. But
with oil and gas exports set to rise
dramatically as large producing ﬁelds
come onstream over the next decade, the country will need
to invest heavily to expand its export capacity.

W

Existing pipelines can handle 1.5 million barrels per day
(b/d), but the Kazakhstan government hopes to raise oil exports
from 1.7 million b/d in 2010 to three million b/d by 2020 –
largely on the back of production from the Karachaganak, Tengiz
and Kashagan ﬁelds. The International Energy Agency (IEA) says
that another two million b/d in export capacity will be needed.

Expanding the Russian route
The Caspian Pipeline Consortium (CPC) link – which routes oil
1,410km from the Tengiz oilﬁeld across Russia and to the
Black Sea port of Novorossiysk – will account for much of this
expanded capacity over the next decade. A signing ceremony
in Moscow in December saw CPC – the four largest

A Chinese worker of the Asian Gas Pipeline inspects
the Kazakh stretch of the Turkmenistan-China
pipeline at Otar gas station, 130km outside Almaty

INVEST IN KAZAKHSTAN 2011

OIL, GAS AND MINING

shareholders of which are Transneft (24 percent), KazMunaiGas
(19 percent), Chevron (15 percent), and LukArco (12.5 percent)
– approve a plan to more than double the pipeline’s annual
capacity from 28 million tons to 67 million tons by 2014.
The cost of the expansion is expected to be around
$5.4 billion, CPC said in a statement, and work began in the
ﬁrst semester of 2011. Under the plan, the partners will
increase installed capacity to 35 million tons in 2012, 48
million tons in 2013, and then to 67 million tons in 2014.
“The expansion will de-bottleneck Kazakhstan’s export
facilities and add around 30 million tons in export capacity to
Kazakhstan,” said Ian MacDonald, a vice president of Chevron.
MacDonald added that internal cash ﬂow would be the primary
source of funds, but added that there is the potential to
ﬁnance a part of construction with loans.
The new volumes to ﬁll the expanded pipeline are to come
mainly from Tengiz and Karachaganak, as well as new offshore
projects in the Caspian Sea such as Russia’s Korchagin ﬁeld –
launched earlier this year – and Kazakhstan’s Kashagan, which
is to be commissioned in 2013.
Where the extra oil will go once it
leaves the CPC link isn’t clear. The CPC
expansion has been approved, despite
delays to the Burgas-Alexandroupolis
pipeline project, which Russia is
developing with Bulgaria and Greece to
ship oil from Novorossiysk across the
Black Sea to Burgas and into a planned
35-million-ton pipeline to Alexandroupolis
on the Aegean Sea. At the same time, the Turkish Straits are
currently at full capacity, which has limited increases in crude
oil deliveries in the Black Sea region.
MacDonald said that CPC would not signiﬁcantly
increase trafﬁc in the Turkish Straits, as much of the crude it
will transport currently reaches the Black Sea by rail, and also
claimed that the pipeline can load larger vessels than other
forms of shipment to the Novorossiysk terminal. “When
completed, CPC will ﬁll two tankers daily, or about 200,000
tons per day, but since the CPC loads larger tankers [than
many Black Sea shipments now], the trafﬁc increase is not
materially signiﬁcant,” he said.
Kazakhstan’s other major oil export pipeline, from
Atyrau to Samara, is a northbound link to Russia’s Transneft
distribution system, which provides Kazakhstan with a
connection to world markets via the Black Sea. The line was
upgraded in 2009 by the addition of pumping and heating
stations, and currently has a capacity of approximately

600,000 b/d. Before the completion of the CPC pipeline,
Kazakhstan exported almost all of its oil through this system.
Russian infrastructure already handles about 75 percent
of Kazakhstan’s exports, and pumping more oil through CPC
risks leaves the country overly dependent on a single transit
country. Therefore, Kazakhstan is looking to hedge this risk
by expanding other routes.

Potential expansion
The Kazakhstan Caspian Transportation System (KCTS) moves
oil south by pipeline from Atyrau to Kuryk, before barging it
across the Caspian Sea to Baku, Azerbaijan. From there it
could travel through an expanded Baku-Tbilisi-Ceyhan (BTC)
pipeline, which bypasses Russia and the Black Sea on its way
to the Turkish Mediterranean.
Oil shipments across the Caspian to Baku are to
eventually reach 500,000 b/d under the terms of a 2009
agreement between Kazakhstan and Azerbaijan. To facilitate
exports of oil from the Kashagan oilﬁeld during the next

The Caspian Pipeline Consortium
(CPC) link will account for much of
the next decade’s expansion
decade, Kazakhstan will develop the KCTS. This includes the
construction of a 500,000 b/d onshore pipeline from western
Kazakhstan to Kuryk on the Caspian shore, where a new
760,000-b/d oil terminal will be built. The KCTS also includes
a maritime link to Baku – with a ﬂeet of new tankers – where
crude oil will feed into an expanded BTC pipeline, which
currently has a capacity of one million b/d.
Under current plans, KazMunaiGas (KMG) will hold
51 percent of the KCTS system, while the international
companies developing the Kashagan ﬁeld will hold the
remainder. The maritime link will be held by a joint venture
between KMG and Azerbaijan’s state-owned oil ﬁrm, Socar.
On 25 January, however, KMG head Kairgeldy Kabyldin
said the implementation of KCTS will be postponed at least
until 2018, as the second phase of the Kashagan oil project
has been postponed until 2018-19. “We are planning to build
the oil terminal in [the port of Kuryk on the Caspian coast]
within the KCTS in 2018-19,” he said.
INVEST IN KAZAKHSTAN 2011

There are also plans to expand the Kazakhstan-China
oil pipeline, which runs from the port of Atyrau in north-west
Kazakhstan to Alashankou in China’s north-west Xinjiang
region. The joint venture between CNPC and KMG currently
transports 200,000 b/d of crude oil from the Aktobe and
Kumkol ﬁelds. In 2009, China reportedly received 61 million
b/d through the pipeline, or four percent of its crude imports.
In October 2009, CNPC and KMG signed a framework
agreement to double capacity to 400,000 b/d by 2013. Upon
future expansion, it will also carry oil from the Kashagan ﬁeld.
Kazakhstan became a net gas exporter for the ﬁrst time
in 2009 and, together with its role as a major transit country
for gas pipeline exports from Uzbekistan and Turkmenistan
to Russia and China, the country needs to invest signiﬁcantly
in its gas transport system.

Major gas pipeline route
One of Kazakhstan’s major export routes is the Central Asia
Gas Pipeline (CAGP), which pumps gas from Turkmenistan,
Kazakhstan and Uzbekistan to Alashankou, China, where it
connects to China’s West-East domestic pipeline system. In
2010, the pipeline was pumping at a rate of around 13 billion
cubic meters a year – about half of which came from
Turkmenistan, with the rest from Kazakhstan and Uzbekistan.
The partners in the project – China National Petroleum
Corporation, KMG and Uzbekneftegas – are busy bringing
the pipeline up to full capacity of 40 billion cubic meters a
year by early 2014, when stage two, the Kazakhstan-China
gas pipeline, is due to be completed. This second phase
INVEST IN KAZAKHSTAN 2011

consists of a pipeline running from Beyneu in Kazakhstan’s
gas-producing western region to Shymkent in its southern
industrial region. This new pipeline will connect to the CAGP
near Shymkent, enabling Kazakhstan to export gas from the
Aktobe, Tengiz and Karachaganak ﬁelds to China, as well as
shipping an expected 10 billion cubic meters a year to the
Shymkent area for domestic use.
There is also an agreement in place between Russia,
Kazakhstan and Turkmenistan to renovate and expand the
western branch of Kazakhstan’s other major gas export
conduit, the Central Asia Center (CAC) pipeline. This
is in addition to building a new Caspian gas pipeline
paralleling the western branch, with a capacity of 20 billion
cubic meters a year. In 2009, this work was put on hold,
because Turkmenistan is considering diversifying its gas
export options, while Russia is trying to cut its Turkmen
gas imports due to lower European demand.
The two branches of the CAC, controlled by Gazprom,
meet in the south-western Kazakh city of Beyneu before
crossing into Russia and feeding into the Russian pipeline
system. The eastern branch, which has a capacity 60 billion
cubic meters a year, originates in the south-eastern gas ﬁelds
of Turkmenistan. The western branch originates on the
Caspian coast of Turkmenistan. Almost all Turkmen and
Uzbek gas is delivered via the eastern branch. Intergas
Central Asia, a subsidiary of KMG, is the operator of the
Kazakh pipeline sections and has been increasing its annual
investment in repairing and modernizing the western branch
of the CAC pipeline using internally generated funds. ■

OIL, GAS AND MINING

Gas production for the
Turkmenistan-China pipeline, which
runs through Kazakhstan. The sign
reads: “Dry and clean natural gas”

Gas: an increasingly
important player in
economic growth

With the right planning and
backing, Kazakhstan can make
the switch from an importer of
natural gas to a global exporter.
By Nicholas Watson

teadily rising natural gas production
transformed Kazakhstan from being
a net gas importer to a net gas
exporter in 2009. According to
BP’s Statistical Review of World
Energy, production hit 32.2 billion cubic
meters the same year, up 8.6 percent from
2008, which translates as 1.1 percent of total

S

global production. In 2010, Kazakhstan
produced 37.4 billion cubic meters of gas.
At the end of 2010, the country had
three trillion cubic meters of current gas
reserves, with almost all of them consisting of
associated gas in ﬁelds located in the west
of the country near the Caspian Sea. The
two largest gas-producing ﬁelds are also the
largest oil-producing ﬁelds – Tengiz and
Karachaganak – where around 69 percent
of gas production in 2009 was reinjected to
enhance oil production.
About 25 percent of proved gas
reserves are located in the Karachaganak oil
and gas ﬁeld, which is being developed by
INVEST IN KAZAKHSTAN 2011

71

72

OIL, GAS AND MINING

Gas production and transport
Russia
Karachaganak oil ﬁeld
Major oilﬁeld that also produces gas

Kazakhstan-China
gas pipeline
Atyrau

Kazakhstan

Will boost industrial area and exports

Alashankou

Tengiz oil ﬁeld
Major oilﬁeld that also produces gas

Almaty

Uzbekistan
Kyrgyzstan

China

Turkmenistan-China
gas pipeline
Most gas used in the south
is imported via this route

Turkmenistan
Saman Depe

Tajikistan

Karachaganak Petroleum Operating – a consortium that is led
by Eni and BG Group, with each holding a 32.5 percent
stake. Chevron owns 20 percent and Lukoil the remaining
15 percent. Karachaganak is the only major oil and gas project
in Kazakhstan that lacks participation from state-owned
KazMunaiGas (KMG) – although the government is in talks
with the partners about rectifying this, with the transfer of a
10 percent stake under discussion.
Karachaganak produced around 139 million barrels of
oil equivalent (boe) in 2009 and about 15 billion cubic meters
of gas – close to half of Kazakhstan’s total gas production
that year. While phases one and two were focused on
condensate production, phase three is geared to boost gas
output signiﬁcantly, and KPO expects to produce in excess of
25 billion cubic meters in 2012.
The bulk of Karachaganak’s gas output is exported north
to Russia’s Orenburg gas-processing plant. An agreement
between Gazprom and KMG in 2008 created KazRosGas, a
joint venture that will purchase gas and expand the Orenburg
plant by 2012. Deliveries of Karachaganak gas to the
INVEST IN KAZAKHSTAN 2011

Orenburg plant – located 84 miles from the ﬁeld – were eight
billion cubic meters in 2008 and are expected to exceed
17 billion cubic meters by 2012.
Kazakh gas production will get a further boost – and
the country, which consumed 19.6 billion cubic meters in
2009, will become self-sufﬁcient – with the development of
the Amangeldy ﬁeld. Located in the south of the country,
Amangeldy is being developed as a joint venture by KMG
and Spain’s Repsol. It was reported to be producing just
under one billion cubic meters in 2010 and has an estimated
25 billion cubic meters of recoverable reserves.

Gas pipeline shortage
The development of Kazakhstan’s gas resources has lagged
behind the oil sector, principally because of the lack of
domestic gas pipeline infrastructure linking the ﬁelds in the
west of the country with the industrial east, as well as
insufﬁciency in export pipelines. The populous south of the
country imports much of its gas from Uzbekistan – via the
Tashkent-Shymkent-Bishkek-Almaty pipeline – even though

74

OIL, GAS AND MINING

“At least three companies are exploring for coal-bed
methane in the Karaganda region, using experimental
technology from Schlumberger. If they are successful,
it would be fantastic for central Kazakhstan”
The Astana headquarters of
KazMunaiGaz, which is interested
in exploring for shale gas

Lakshmi Mittal, chief executive of
ArcelorMittal, which is working on
a coal-bed methane extraction
project in Kazakhstan

gas is exported from Kazakhstan’s own north-western regions.
However, the Kazakhstan-China gas pipeline will enable the
transport of gas to Kazakhstan’s industrial region, as well as
increased gas exports, when it comes online in 2014.

Non-conventional gas reserves
Wherever there are hydrocarbons deposits, there is the
potential for the discovery of shale gas, so Central Asia and
Kazakhstan are expected to also locate and develop deposits
of unconventional gas. In October, Kazakh oil minister Sauat
Mynbayev said that the country is already searching for
unconventional gas deposits – both shale gas and coal-bed
methane. “At least three companies are exploring for coal-bed
methane in the Karaganda region, using experimental
technology from Schlumberger, and we are waiting to see
whether they are successful. And if they are successful, it
would be fantastic for central Kazakhstan, which is far from
the western gas ﬁelds. We hope this will develop.”
INVEST IN KAZAKHSTAN 2011

Mynbayev added that explorations for shale gas deposits
in eastern Kazakhstan had begun. “Some companies have
started to look there, but these projects are much less
developed than coal-bed methane,” he said.
KMG has expressed interest in developing this
particular ﬁeld of gas exploration, although it has not yet
embarked on any speciﬁc projects. “Yes, we consider shale
gas as part of our strategic plans for the future, but it’s a
matter for the future – we are at the moment not involved in
exploring for shale gas,” says Kenzhebek Ibrashev, head of
KMG Exploration Production, the listed subsidiary of
Kazakhstan’s national oil company.
Meanwhile, ArcelorMittal – which owns the Temirtau
steel complex around 50km from Kazakhstan’s mining
capital Karaganda – is working on a project that is partly
funded by the European Bank for Reconstruction and
Development to extract the roughly 28 billion cubic meters
of coal-bed methane from nearby coalﬁelds. n

76

OIL, GAS AND MINING

Taking the
long-term view

The Kazakh government has targeted sectors
such as chemicals, petrochemicals and
fertilizers as priority areas for development

INVEST IN KAZAKHSTAN 2011

OIL, GAS AND MINING

By adhering to a 20-year national
strategy that focuses on areas of
the greatest need, Kazakhstan
aims to reverse the age-old
problem of consumption
outstripping production.
By Nicholas Watson

azakhstan is making a big bet on
the long-term potential of the
downstream part of its energy
business, and is making huge
investments in the country’s
reﬁning and petrochemical industries. This
marks it out from its Central Asian neighbors,
which are pouring investment into only the
most immediately proﬁtable growth areas of
energy, mining and raw commodities.
This strategy is driven by government
forecasts that the greatest proﬁts and most
lasting prosperity will come from downstream,
as well as from value-added manufacturing,
industrial and high-tech processes. As such,
sustainable, long-term growth requires
signiﬁcant, continuous investment into highlevel technical workforce training and hightech infrastructure development – both
of which are primary goals of Kazakhstan’s
20-year national development strategy to
the year 2030.This approach has won praise

K

from many quarters including the European
Bank for Reconstruction and Development.
Almost all long-term forecasts show the
growth rate for consumption of petrochemical
products outstripping production, so it’s no
surprise that investors are now paying greater
attention to this segment. Industry players
expect the growth in global demand for
petrochemicals this year to match 2010
levels, which hit around two percent in
Europe, three percent in the US, and between
four and ﬁve percent in the Middle East and
other emerging markets.
A sign of Kazakhstan’s conﬁdence in
the industry was the decision of state-owned
oil company KazMunaiGas (KMG) in 2010 to
press ahead with an ambitious plan to build
a petrochemical complex in the Atyrau region
close to the Caspian Sea, where major Kazakh
oil reserves are located – including the giant
Kashagan oilﬁeld – despite foreign partners
pulling out. On February 24, the Development
Bank of Kazakhstan signed a $1.38 billion
loan agreement with the Export-Import Bank
of China to help ﬁnance the ﬁrst phase of
construction. According to an Oil and Gas
Ministry plan published on March 15, the
complex will be able to produce 800,000
metric tonnes of polyethylene and 500,000
metric tonnes of polypropylene a year when
it reaches full capacity in 2015.
INVEST IN KAZAKHSTAN 2011

77

78

OIL, GAS AND MINING

The Atyrau reﬁnery is one of Kazakhstan’s
three major oil reﬁneries, each of which
has a capacity of 345,000 barrels per day

Each year, the Tenzig oil reﬁnery
pumps billions of dollars into
the Kazakh economy

KMG’s Atyrau plant will not
only be Kazakhstan’s ﬁrst
integrated gas and chemicals
complex, but also the only
one of its kind in Central Asia
The complex will not only be Kazakhstan’s ﬁrst
integrated gas and chemicals complex, but also the only
plant of its kind in Central Asia, giving the Kazakhs an
enormous advantage and development lead-time over their
neighbors. It will supply both the growing local market and
compete on international markets, particularly next-door
in China, which has emerged as the world’s biggest
petrochemical market.
Further progress on the complex was announced on
March 25, when Deputy Oil and Gas Minister Aset Magauov
said that Kazakhstan plans to choose a partner for the
planned $4 billion polyethylene plant, the candidates being
South Korea’s LG Chem and Abu Dhabi’s International
Petroleum Investment Company. South Korea’s Hanwha
Chemical, Japan’s Marubeni and China Petroleum & Chemical
Corporation, known as Sinopec, also previously held talks
on building the plant, the ministry said.
INVEST IN KAZAKHSTAN 2011

Kazakhstan has three major oil reﬁneries – Pavlodar,
Atyrau and Shymkent – which have a capacity of around
345,000 barrels per day, but which operate below this level
due to lack of demand on the local market for their products:
fuel oil, diesel fuel, motor gasoline, jet fuel and liqueﬁed gas.
To bring them up to international standards and to start
exporting their products, all three are set to modernized.
The reﬁnery at Pavlodar in northern Kazakhstan is
supplied mainly by crude oil produced at Russian oilﬁelds
in western Siberia. On February 27, KMG denied reports
that it is planning to close Pavlodar after 2014, when
duty-free imports from Russia will cease. “KMG has no
plans or intentions [to close the reﬁnery],” the company said
in a statement. “Moreover, all measures for the further
modernisation of the Pavlodar plant are being carried out
according to the government order from 2009 to develop
reﬁning capacity in Kazakhstan by 2014.”
The Atyrau reﬁnery is also being modernized. In October
2009, KMG and Sinopec signed a contract for the construction
of a new processing facility, scheduled for completion by 2013.
The facility will allow the plant to extract benzene and other
chemicals from oil, and improve the quality of gasoline output.
The Shymkent reﬁnery is operated by Petrokazakhstan,
which is 33 percent owned by KMG and 67 percent owned by
the China National Petroleum Corporation. Petrokazakhstan
is the second-largest foreign-owned oil producer, and the
largest manufacturer and supplier of oil products in the
country. It is currently involved in projects aimed at increasing
the reﬁning capacity and range of products at Shymkent. n

OIL, GAS AND MINING

ArcelorMittal’s safety
investment pays off

Following several methane-associated accidents
during mining in deep excavations, efforts by
ArcelorMittal to tackle this problem have made
a signiﬁcant difference to eliminating accidents
and mitigating risks, reports Christopher Pala

teel producer and mining company ArcelorMittal –
after investing $342 million, and three years into its
multimillion-dollar program in Kazakhstan to cut
coal-mining fatalities to zero in ﬁve years – is ﬁnding
that the accidents that had turned it into a magnet
for controversy have fallen signiﬁcantly.
“This shows we’re taking the right measures,” says
Frank Pannier, CEO of the Kazakhstani unit (Temirtau) of the
world’s largest steelmaker. The number of accidents in 2010

S

About 11,000 of ArcelorMittal’s
employees work underground,
where coal deposits are now
degassed routinely beforehand

INVEST IN KAZAKHSTAN 2011

81

82

OIL, GAS AND MINING

The investment to improve safety at coal mines is
undertaken in addition to a $1 billion program to raise its
output of steel from four to six million tons by 2015
Number of accidents

179

81

2008

2009

64
2010

42

2008

A drop in fatalities

fell to 64, compared with 81 in 2009 and 179 in 2008;
fatalities dropped from 42 to seven over the same period.
Around 11,000 of the company’s 40,000 employees work
underground in mines made dangerous by methane deposits.
Pannier says 2,548 people died in accidents, mostly as
a result of methane explosions, from the time the complex
was built south of Astana in 1945 – an average of 50 per year.
But since ArcelorMittal steel bought the complex of eight coal
mines and two mills in 1996, a total 217 coal miners have
died – an average of 14 a year.
Still, when an explosion at the Lenina mine – south-east
of the capital, Astana – killed 41 people in September, 2006,
the staff went on strike. After another explosion at its
Abaiskaya mine killed 30 workers in 2008, Kazakhstan’s
government publicly threatened the company with pulling its
license to operate if it did not improve safety.
At the time, President Nursultan Nazarbayev – who
began his career at the age of 20 at the steel plant when
INVEST IN KAZAKHSTAN 2011

2010

7

it was inaugurated in 1960 and had worked there for
several years – was deeply upset by the events, according to
a source who quoted his conﬁdants.
The high casualty rate is largely due to the fact that
ArcelorMittal’s coal runs mostly at depths between 2,600 feet
and 3,200 feet. That is very deep in comparison to other coal
mining conditions worldwide.
The coal seams are also some of the gassiest in the
world, containing pockets of methane under pressure that are
difﬁcult to detect, says methane expert Clark Talkington, a
senior vice president at Sindicatum Carbon Americas. In
contrast, for the rest of Kazakhstan’s coal industry, which
provides 80 percent of the country’s energy, open-air strip
mining is the norm.
In July 2008, the company embarked on a plan to
eliminate methane explosions, a program that combined staff
training and the importation of state-of-the-art gas detection,
ventilation equipment and world-class degassing techniques.

OIL, GAS AND MINING

One source for innovative solutions
Since 1882, FLSmidth has been
blazing new trails in the cement
and minerals industries, helping it
become leaner, greener and more
proﬁtable. With ofﬁces in over
40 countries and more than
11,000 employees, FLSmidth is
recognised as a leading supplier
of a comprehensive range of
equipment, and is available to help
with everything from strategic
planning to overcoming everyday
challenges. Its unmatched
combination of proven technology
and process know-how has
provided innovative solutions for
many of the world’s most
successful plants – including more
than 2,000 cement plants – in

Kazakhstan and around the globe.
The Republic of Kazakhstan is
rich in natural resources and is
one of the world’s most signiﬁcant
suppliers of minerals, oil, gas
and other products.
FLSmidth is proud that several
companies in Kazakhstan –
such as Central Asia Cement,
Sastobe Cement and Kokshe
Cement – have trusted it with
equipment orders for production
of the high-quality cement
essential to the country’s
continuing development. It looks
forward to cooperating with
these and other companies to
supply engineering skills and
equipment for existing and

The investment to improve safety at coal mines is
undertaken in addition to a $1 billion program to raise its
output of steel from four to six million tons by 2015. The
European Bank for Reconstruction and Development granted
a $100 million loan for the safety program.
The program for degassing is all about removing as much
methane as possible from the mine before production begins,
and removing the remainder during the mining process,
Arcelor’s Pannier explains. Holes of varying diameters are
drilled across the production unit in the coal seam and
through the roof of the extracted area to capture the methane,
which is brought up by suction pumps on the surface.
“What we’re doing is doubling the number of ventilation
wells,” says Pannier. “We also are installing more effective
ventilation and degassing equipment, and more sophisticated
equipment to detect gases.”
A native of Dessau in Germany who has worked at
various steel and mining companies in Germany, Ukraine
and Kazakhstan, Pannier says that eliminating mortality
from Temirtau’s eight mines represents “one of the most
challenging jobs of my career. Many studies have shown that
not all risks can be eliminated, but we can apply practices
that mitigate this risk,” he says.

greenﬁeld cement plants, as
well as for Kazakhstan’s
minerals industry.
The company would also like
to congratulate the people of

Kazakhstan on this year’s
celebration of the 20th
anniversary of Kazakhstan’s
independence, achieved on
December 16, 1991.

Sindicatum’s Talkington agrees that Arcelor’s mines are
among the most challenging in the world. “Management is
clearly committed to improving safety, and I think they
should be able to achieve that by bringing in the latest
degassing technology developed in Australia and the US,
and adapting it to the local conditions.”
Although the worldwide recession has cut into the proﬁts
of the world’s largest steelmaker, the Temirtau operation,
luckily, “is very cost-effective”, says Pannier. “We’re working
at full capacity, we have captive iron, coal and energy, and we
even managed to turn a proﬁt in 2009,” he says.
This year, steel output will be increased by 17 percent
to 3.9 million tons as demand bounces back, he adds.
There’s also hope of actually extracting a proﬁt from the
methane as well: in two of the mines, it is captured and used
for heating, and an experimental two megawatt (MW) power
station is being tested. If the technology proves successful,
the company could use the methane to power a 50MW plant
to replace that amount of power that the company currently
purchases from the grid, Pannier says. n
Christopher Pala, a former Central Asia correspondent for The New
York Times, is a freelance journalist based in Washington, DC
INVEST IN KAZAKHSTAN 2011

83

84

OIL, GAS AND MINING

Unearthing Kazakhstan’s
metallic riches

INVEST IN KAZAKHSTAN 2011

OIL, GAS AND MINING

With all the minerals in the
periodic table, Kazakh investment
in mining and metals production
is back on track. By Clare Nuttall

he rally in global commodities
prices that started in late 2009
and persisted through last year
put Kazakhstan’s mining sector
back on track after some severe
setbacks during the international economic
crisis. Now the sector’s giants – Eurasian
Natural Resources Company (ENRC),
Kazakhmys and ArcelorMittal Temirtau –
are reviving their investment plans, as are
the many smaller players in the industry.
Kazakhmys is planning to spend
$6 billion over the next three to four years
to develop new deposits, modernize and
expand its existing metals business, and
launch new energy projects. ENRC has
$7 billion of investment plans, and the
country’s largest steel producer, ArcelorMittal
Temirtau, is partway through a $1.2 billion
program to modernize its plants and improve
its safety record.
Kazakhstan had already increased
production of several of its key commodities
since the crisis. According to the State
Statistics Agency, in 2010 Kazakhstan
produced 323,428 metric tonnes of reﬁned
copper in 2010, up 3.4 percent compared to
the previous year, and production of ferroalloys
was up 18.3 percent to 1.73 million metric
tonnes. Kazakhstan also increased output of
alumina by 7.6 percent, crude steel by
1.8 percent and reﬁned gold by 29.5 percent
during 2010. Meanwhile, production of zinc
concentrate and lead concentrate fell by
3.3 percent and 8.4 percent respectively,
compared to 2009 levels.
China remains the largest consumer of
Kazakhstan’s metals and minerals. Oil and oil
products accounted for 45 percent of exports
in 2009, followed by mining products, which
accounted for 16 percent of the total,

T

iron-based metals (15 percent), copper and
brassware (13 percent) and chemicals (seven
percent), according to Renaissance Capital.
Chinese demand is a driving force for some of
the largest investments in the sector.
Kazakhmys said on announcing its 2010
results in March 2011 that it expects the
current strong demand for copper to continue.
The company’s production is expected to
remain relatively ﬂat until 2014, when some
signiﬁcant new projects start to come online.
Kazakhmys is developing two major copper
deposits, Aktogay and Bozshakol, both of
which are located in eastern Kazakhstan.
In June 2011, the company announced
that it had signed a memorandum of
understanding with the China Development
Bank to secure a $1.5 billion loan facility
to develop the Aktogay copper project.
Kazakhmys already has a $2.7 billion loan
facility from the bank for Bozshakol and
several medium-sized projects.
“Our two major growth projects,
Aktogay and Bozshakol, should produce
around 200 kilotons of copper concentrate
each year, equivalent to 60 percent of our
current production, which is signiﬁcant for
Kazakhmys and for the growth of the metals
industry in Kazakhstan,” said Kazakhmys
CEO Oleg Novachuk in a statement issued
following the latest agreement with the China
Development Bank.
In February this year, Kazakhstan’s
President Nursultan Nazarbayev announced
during his visit to Beijing that the China
Development Bank also agreed to provide
a $2 billion loan to ENRC. Of this total,
$1.6 billion is expected to be used by the
iron-ore division and $400 million for the
ferroalloys division. Like Kazakhmys, ENRC
has ambitious expansion plans, and at the
beginning of this year the company’s then
CEO Felix Vulis announced the company
expects to invest up to $7 billion to develop
its assets within Kazakhstan.
Key projects in ENRC’s home country are
the construction of a ferroalloy plant in the
INVEST IN KAZAKHSTAN 2011

85

86

OIL, GAS AND MINING

The Zhezkazghan mining
and smelting plant,
operated by Kazakhmys

Aktobe region and the expansion of the Sokolovsko-Sarbaiskoye
Mining Association. ENRC may also invest up to $2 billion in
the Zhairem polymetallic project. While ﬁrmly rooted in
Kazakhstan, ENRC is also expanding overseas. It has made
several investments in Africa and South America.
Kazakhstan’s largest steel producer, ArcelorMittal
Temirtau, announced at the end of 2009 that it was resuming
all investment projects in Kazakhstan that had been suspended
due to the crisis. The company is spending on new steel
production facilities and mines, and on improving safety.
Kazakhstan’s steel production was up 4.1 percent year
on year in 2010, to 4.3 million tons, according to the World

Steel Association. Consumption within the country was also
up to around three million tons, as pipeline and new
construction projects – many government funded – pushed up
demand. Kazakhstan also exports steel, with its main markets
being China, Russia, Iran and the European Union.
Both ENRC and Kazakhmys are listed on the London
Stock Exchange, and in June 2011 Kazakhmys successfully
carried out a secondary listing on the Hong Kong Stock
Exchange. There is currently speculation that part of the
Kazakhstani government’s stakes in the two companies
could be sold off as part of the planned ‘People’s IPO’
programme. However, the list of companies to be included
in the programme has yet to be ﬁnalized. Meanwhile,
commodity trader Glencore, which owns 50.7 percent of
Kazzinc, carried out a $11 billion ﬂotation on the London
Stock Exchange in May 2011, with a secondary listing in
Hong Kong. Glencore plans to use funds from the listing to
increase its stake in Kazzinc, which is active in mining zinc
and lead, and in metallurgy, as well as to ﬁnance capital
expenditure and repay its debts.
In addition to the giants of the Kazakh mining sector,
numerous smaller companies are active in various branches
of the mining industry. Kazakhstan prides itself in holding
all of the minerals in the periodic table, and investors are
looking beyond copper and iron to the lesser known, but
valuable metals such as rare earths, which are increasingly
in demand since China has reduced exports. n

Kazakhstan metal production in 2010

29.5%

18.3%
7.6%

3.4%
Copper

Ferroalloys

Alumina

1.8%
Crude steel

Reﬁned gold

Zinc concentrate Lead concentrate

3.3% 8.4%
INVEST IN KAZAKHSTAN 2011

OIL, GAS AND MINING

Good things come in
small packages
Opportunities for unearthing precious
metals abound – and not only for mining
behemoths By Christopher Pala

ost of the minerals in the periodic table are
to be found in Kazakhstan, with plenty left
in the ground for entrepreneurial smaller
mining companies. Higher gold and silver
prices beneﬁt both the polymetal miners
such as Glencore International and Ivanhoe Mines, and smaller
gold players such as AIM-traded Hambledon and Frontier
Mining, and phosphates miner Sunkar Resources.
President Nursultan Nazarbayev has set a goal of more
than tripling gold production to 70 metric tonnes a year by
2015, paving the way for multiple opportunities for
investment in the remaining two-thirds of the deposits.
There are technical challenges, however. Most of the
Kazakhstani gold is in polymetallic ore that requires
complex processes, mostly refractory, to isolate.

M

But there is a tantalizingly abundant supply of gold,
which since 2000 has quintupled in price to $1,600 per
ounce. The US Geological Survey estimates there are
1,900 tonnes of gold in the country. This makes it the world’s
ninth largest country in terms of reserves, yet in terms of
production (20 tonnes a year) it ranks twentieth. Of those
reserves, about a third is held by two companies.
Around 360 tonnes are believed to be in the
Vassilkovskoye deposit, located in northern Kazakhstan and
owned by Kazzinc in Zyrianovsk, to the east. The former
state-owned company – which has sold its controlling
50.7 percent stakes to Switzerland-based Glencore
International – is planning on doubling its capacity to
15 tonnes a year. Kazzinc, which owns 100 percent of the
Vasilkovskoye gold mine, is in the process of spinning off its
gold assets into a separate company.
Another 277 tonnes of gold reserves are in the Kyzyl
Gold Project’s Bakyrchik mine, located in the industrial
center of the country. It is operated by Altynalmas Gold, in
which Canada-based Ivanhoe Mines raised its interest from
INVEST IN KAZAKHSTAN 2011

89

90

OIL, GAS AND MINING

Requests for tenders have been circulated for the
fabrication of long-lead items for the Bakyrchik operation

A miner at Bakyrchik, one
of the world’s largest gold
deposits, located in the
industrial center of Kazakhstan

49 percent to 50 percent. Ivanhoe is controlled by billionaire
Robert Friedland. The rest of the stake is owned by a group of
investors headed by Goga Ashkenazi, the London-based,
Kazakh-born socialite and businesswoman.
In addition to Bakyrchik, the Kyzyl Gold Project contains
the Bolshevik gold deposits and several satellite deposits.
After a pre-feasibility study gave the green light, a deﬁnitive
feasibility study on the Bakyrchik Deposit began in September
2010 and is expected to be complete by this summer.
Requests for tenders have been circulated for the
fabrication of long-lead items for the mining operation,
including an oxygen plant and dry-grinding mill.
Altynalmas expects to begin construction of a
1.5-million-tonne per year ﬂuidized-bed roasting plant to process
the project’s refractory ores in 2011. Targets are 12.5 tonnes for
2014, the ﬁrst year of full production, 15 tonnes by 2015 and,
after developing a second mining front, 20 tonnes a year. The
company is investigating ﬁnancing options that include an initial
public offering, strategic investors, project ﬁnancing or continued
ﬁnancing from existing shareholders.
UK-based Hambledon Mining, the dean of the junior
internationals, has been operating in Kazakhstan since 1998.
INVEST IN KAZAKHSTAN 2011

Its main focus is the Sekisovskoye deposit, an
open-pit mine and underground development
with a multifunctional processing plant
located near Ursk Kamenogorsk in east
Kazakhstan. So far it is producing
0.85 tonnes a year, but expects to reach
2.8 tonnes by 2013 when the company plans
to process ore from underground, which has a
grade that is around three times higher.
“We have capacity to process up to one
million tonnes a year of ore depending on its
hardness,” Hambledon Director Nick Bridgen
told the Journal of Engineering and Mining.
Since this is more than its mines can
produce, Hambledon plans to process other
companies’ ore at plants at Sekisovskoye
and possibly Ognevka. In addition, Bridgen
explained that the company is looking to
buy other deposits. In March 2011, the
company announced its intention to raise £8.52 million
($13.63 million) net of expenses through the issue of up to
227,329,873 new ordinary shares.
London-registered phosphate producer Sunkar, located
near Aktobe in Western Kazakhstan, near the Russian border,
was born from the takeover of Temir Services in 2006. The
836-square-kilometer Chilisai deposit is one of the largest in
the former Soviet Union, with a resource of around
800 million tonnes of ore at 10 percent phosphorus
pentoxide. The company extracted one million tonnes last
year. It was developed during the Soviet era and it closed for
several years when demand for fertilizers collapsed in the
early 1990s. In March, Sunkar reached agreement with
Gazprom’s Meleuzovskiye Mineralniye Udobreniya to supply
5,000 tonnes of phosphoric concentrate.
Frontier Mining, incorporated in the Cayman Islands,
mines gold and copper deposits and is expected to produce
3,000 tonnes of LME-grade copper from the Benkala mine
by the end of 2011. Frontier owns half of Benkala and is in
the process of acquiring the other half from Coville Intercorp,
a private Kazakhstani mining group. Frontier also has one
producing gold mine, Koskuduk. n

92

OIL, GAS AND MINING

Keeping the nuclear faith

Uranium pellets cool after being baked at the Ulba
Metallurgical Plant in Ust-Kamenogorsk, Kazakhstan

azakhstan – which holds the
world’s second largest reserves of
uranium after Australia – expects
to produce 19,600 tons this year
after more than doubling its
output in just three years. By increasing both
the number of its mines and the capacity of
many of them, Kazakhstan became the
world’s largest producer in 2009, leaving the
other two giants – Canada and Australia – far
behind. And that’s not all: production is
scheduled to reach 25,000 tons by 2015.
But ramping up output to satisfy the
demand of a world increasingly turning away
from carbon-intensive energy like coal and oil,
is only one goal. The other is to harness the
know-how of major international players to
squeeze ever more value out of every kilo of
the metal, by expanding downstream and
mastering functions that in the Soviet days
were performed in Russia.
The ultimate plan is to take the nuclear
cycle to its conclusion by building a nuclear
power plant by 2020.
While the reappraisal of nuclear
energy’s safety in the wake of the nightmare
at Japan’s coastal plants has cast a pall on
uranium’s future, the World Nuclear
Association still estimates that there will be
at least 589 nuclear plants in the world in
30 years, from 367 today.
Still, there’s no question that the
catastrophe could have an effect on global
demand. “The nuclear renaissance has been
called into question,” says John Mothersole,
an analyst at IHS Global Insight in
Washington, DC. “Now the outlook is
anywhere between very good and uncertain.”
Kazakhstan’s faith in nuclear energy’s
safety was vividly illustrated by the reaction
of Duisenbai Turganov, the Deputy Minister of
Industry and New Technologies, at a

K

conference on power engineering that took
place after the earthquake raised fresh doubts
about nuclear energy’s safety.
“We believe that the construction of a
nuclear power plant should take place in
Kazakhstan because we have all the necessary
conditions for this,” he said. “We hold the
world’s second largest uranium reserves and
we are in front of everyone in terms of
production,” he added. ‘Of course, signiﬁcant
attention must be paid to security.”
Dominating the uranium ﬁeld is
Kazatomprom, headed by Vladimir Shkolnik,
a nuclear engineer and former president of
the Academy of Sciences of Kazakhstan who
has served as energy minister and trade

Kazakhstan became
the world’s largest
producer in 2009,
leaving Canada and
Australia far behind
minister. In 2009, Kazakhstan produced
13.5 tons of uranium – almost 28 percent
of global production. The following year,
production volumes continued to grow
and reached 17.8 tons. Expected proﬁts
are $366 million and the orders book
amounts to $17 billion.
In addition to increasing production,
Kazatomprom is diversifying its activities
across the entire nuclear fuel cycle through a
growing number of foreign joint ventures.
Shkolnik has stressed that more foreign
investors are being sought for these activities.
Last year, the company took a series of
initiatives in uranium conversion, enrichment
and fuel fabrication with international
INVEST IN KAZAKHSTAN 2011

93

94

OIL, GAS AND MINING

Vladimir Shkolnik, Chairman of the Board of Kazatomprom
Two years ago, Kazakhstan
overtook both Australia and Canada
to become the world’s largest
producer of uranium. Kazakhstan
further boosted production to
17,803 tons in 2010, and we are
aiming to reach 19,900 tons in 2011.
With close to 19 percent of
global uranium reserves,
Kazakhstan is well positioned to
take advantage of the ongoing
nuclear renaissance. Governments
around the world are increasingly
turning their attention back to
nuclear energy, due to high oil
prices and concerns over future
access to fossil fuels.
The world was with Japan after
the disaster at the country’s
Fukushima power plant, which
was severely damaged by the
tragic earthquake on March 11,
2011. Although some governments
are rethinking their plans to build
new nuclear capacity, the majority
of projects, many of them in Asian

countries, are expected to go
ahead. The demand for uranium is
still expected to be high.
China, Russia and South Korea
are all planning to build new power
plants, while Kazakhstan is
preparing to launch its own
nuclear power industry, with the
construction of a power plant in
the western Mangystau region.
Kazatomprom plans to invest
341 billion tenge ($2.3 billion)
between 2011 and 2015 on
increasing production. But our
ambitions are not limited to
increasing uranium extraction.
For several years, the company
has been working to build an
international, vertically integrated
uranium industry spanning all
stages from exploration and
production of uranium through to
processing. We employ more than
25,000 people across all stages of
the uranium product cycle and
related activities.

companies like Areva of France, Cameco of Canada, and
Toshiba and Sumitomo of Japan.
An agreement signed with Areva in October 2010
during an ofﬁcial visit by Kazakh President Nursultan
Nazarbayev to France allowed Ulba Metallurgical Plant
(UMP) – which is 51 percent owned by Kazatomprom and
49 percent owned by Areva – to build a 400-ton-per-year
fuel fabrication line that is due to start operation in 2014.
In 2010, UMP completed Areva’s certiﬁcation process to
produce fuel pellets made of uranium dioxide as per Areva’s
speciﬁcations, used in many countries around the world.
In addition, Kazatomprom works with Areva in the
Tortkuduk and Southern Mynkuduk mines.
In the ﬁeld of uranium conversion, Kazatomprom
signed a memorandum of understanding with Canada’s
Cameco, covering the development of a reﬁnery at its
INVEST IN KAZAKHSTAN 2011

A contract between French nuclear giant Areva and Kazakhstan company
Kazatomprom is signed at the Elysee Palace, Paris, in October 2010

Building Kazakhstan’s nuclear
industry has been a work of
cooperation between Kazatomprom
and several strong international
partners. Joint ventures with top
companies including Areva,
Cameco and UraniumOne are
enabling Kazatomprom to create a
world-class uranium industry. On
May 18, 2011, the Kazakh-French
joint venture KATCO celebrated the
production of its 10,000th ton of

uranium production in south
Kazakhstan oblast. Meanwhile, our
company is also looking to invest
$800 million to develop rare-earth
metal mining in Kazakhstan.
Finally, we are venturing into
green energy. Green energy is
clearly becoming a more important
part of our future. To that end, we
started building a $230 million
solar-panel plant in Astana, and are
researching other ventures.

Ulba Metallurgical Plant subsidiary and the expansion of
the uranium conversion capacity at the Springﬁelds plant
in the United Kingdom, where the latter company has a
toll-processing agreement.
In 2010, UMP successfully completed the certiﬁcation
of production of uranium fuel pellets at China Jianzhong
Nuclear Fuel, a unit of the China National Nuclear Company.
The uranium pellets will be used in fuel production for the
largest nuclear power plant owner in China, the China
Guangdong Nuclear Power Corporation.
UMP is also working on the construction of a processing
plant with Toshiba and an enrichment plant with Rusatom.
Meanwhile, Kazatomprom is moving forward with plans
to take a stake in the Ural Electrochemical Plant enrichment
facility in Russia and expects to complete a deal to acquire
shares in the plant during the coming year. n

ENERGY AND INFRASTRUCTURE

The electricity infrastructure of
Kazakhstan has been stretched to
capacity over the past eight years

Building a grid
that’s ﬁt for purpose

As the southern half of Kazakhstan does not
have the infrastructure to receive surplus
energy from the north of the country which has
an abundance of amenities, efforts are being
made to address this imbalance and make it
self-sufﬁcient – with enough electricity spare
to sell to its neighbors. By Tim Gosling

ith Kazakhstan’s resumption in economic
growth, electricity demand is booming
once more across the country, and with the
government committed to higher power
tariffs, the incentives for investment in
both electricity generation and the national grid system
have never been greater.
Investment in expanded capacity is a matter of urgency
in Kazakhstan, as a deﬁcit in the supply of electricity is
growing. Power cuts, especially in the south, can be frequent,

W

with electricity infrastructure stretched to capacity by the
increase in industrial production over the last eight years.
The situation was somewhat allayed by the ﬁnancial
crisis, but with industrial production expanding once more,
the country is again hungry for power. At the same time,
Kazakhstan has the opportunity to boost exports to China,
Russia and its Central Asian neighbors, some of which offer
wholesale prices signiﬁcantly above Kazakh production costs.
Thermal power plants account for 85.5 percent of the
country’s generation, with the remainder being produced
by hydropower (8.8 percent) and gas turbine stations
(5.7 percent). As of 2009, there were 63 electric power plants
in Kazakhstan, the major ones controlled by large industrial
consumers, which acquired them during the boom years.

Government plan to boost capacity
The power industry is seen as a key factor in Kazakhstan's
industrial development and economic growth, with generation
accounting for around 10 percent of all industrial output.
INVEST IN KAZAKHSTAN 2011

97

98

ENERGY AND INFRASTRUCTURE

Percentage of energy
production in
Kazakhstan

85.5%
Thermal power plants

Most installed capacity was built before
1990. Until 2006, the sector suffered from
underinvestment and as a result, the total
operational capacity deteriorated to 14.6
gigawatts (GW), a signiﬁcant shortfall from
installed capacity of 19GW.
Overall, the power sector is projected to
boost total capacity to around 125 billion
kilowatt hours (kWh) by 2015. By comparison,
82.3 billion kWh was produced in 2010,
representing a 4.9 percent increase over
2009 levels. However, consumption spiked
at 7.4 percent the same year to 83.8 billion
kWh, and the market is forecast to grow by up
to a third over the next ﬁve years.
The Plan of Energy Sector Development 2007-15
sets out the government’s targets for the sector:
s Reconstruction of existing
power plants
s To build additional capacity of
2,430-2,550MW
s Investment of up to $14.3 billion
to 2015 (although industry ﬁgures
suggest $20 billion plus)
Investment is also planned for the
transmission grid, which is limiting the transfer
of excess power between regions and sees
signiﬁcant power losses during transmission.

Tariffs to attract investment

8.8%
hydropower

5.7%
gas turbine stations

INVEST IN KAZAKHSTAN 2011

The leading edge to encourage investment in
power generation is a framework to raise tariff
ceilings for domestic electricity sales for
2009-15. The ceiling prices are set by the
Ministry of Energy on an annual basis, and
are subject to generators meeting capital
investment commitments.
Government forecasts for certain power
plants suggest increases of up to 60 percent
over last year’s tariffs by 2015. Generally,
the price ceilings are set in order that the
required capital expenses are recovered within
eight to 12 years.
The power sector was one of the ﬁrst to
be privatized after Kazakhstan gained its

independence in 1991. Up to 100 percent
foreign participation is permitted in
developing power projects in Kazakhstan.
The Law on Electricity was adopted in
July 2004. Another basic act regulating the
market is the Law on Natural Monopolies,
which was last amended in December 2004.
The market regulator is the Agency for
Regulation of Natural Monopolies.

The risk to economic development
The biggest motivation for the government
push to attract investment is that the country’s
limited capacity threatens to start restricting
its accelerating economic development.
Development of nuclear energy, which
would make use of Kazakhstan's uranium
resources, is one proposal favored by the
government. Russia, Japan and China have
expressed interest in working with Kazakhstan
on a number of projects – including the
construction of a nuclear power station. A
feasibility study into the project is under way.
In the meantime, Kazakhstan is likely to
become increasingly reliant on imports of
electricity from its neighbors, and the Kyrgyz
Republic in particular. Kyrgyzstan, however, is
a potentially unreliable source of energy, given
persistent political instability and erratic
water supplies to its hydropower plants.
Businesses in other sectors are aware
that electricity supplies risk becoming
increasingly erratic, and that they might need
to consider investing in their own generating
sources, unless development of the power
industry is accelerated. In one example, the
West Kazakhstan authorities announced in
2009 that construction of a new cement plant
in the region had been postponed due to the
lack of a reliable electricity supply.
Another impetus for development of the
sector is regional imbalance. While the north
– studded with power plants surrounding its
rich coal ﬁelds – exports electricity to Russia,
a deﬁcit in the south and west makes it
necessary to import from southern neighbors
Kyrgyzstan and Uzbekistan.

ENERGY AND INFRASTRUCTURE

Strengthening the backbone
One of the biggest investment
opportunities in the Kazakh power
sector is the upgrade and
expansion of the national grid.
Despite improvements in recent
years, there is room for
improvement, given that losses
during transmission and
distribution are estimated at
approximately 15 percent.
Kazakhstan Electricity Grid
Operating Company (KECOG) has

said it plans to invest in expansion
through 2025. The company has
prioritized transmission lines to
Kyrgyzstan, and to connect existing
and future hydropower facilities
with signiﬁcant load centers.
At the same time, a new power
line – funded by the European
Bank for Reconstruction and
Development (EBRD), Kazakhstan
Development Bank and the World
Bank – opened in September 2009,

One of the biggest investment opportunities in the
country, therefore, is the need to integrate a national
transmission grid. The national power grid, largely built before
1990, was not designed to transfer surplus between regions.
Development of infrastructure in the west of the country is
also geared to the energy-hungry Chinese market, while Russia
and other Central Asian states are targets for exports as well.
Kazakhstan is considering building a 900km transmission
line to export power from Ekibastuz to Urumqi in China, while
the Chinese side is reportedly mulling an investment in the
construction of a large power station in Ekibastuz.
Meanwhile, Kazakhstan’s coal-powered plants in the
north export considerable volumes of power to Russia, where
prices are expected to continue to rise as the economic
recovery continues. Russian bank VEB is ﬁnancing the
construction of a third power plant at Ekibastuz GRES-2
power station to the tune of $800 million.

and goes a long way towards
solving regional imbalances by
doubling the volume of electricity
delivered to central and southern
Kazakhstan from the north.
Meanwhile, Hyundai Engineering
Co. recently won a tender run
by KECOG for a $100 million
upgrade of substations. The
contract is part of an ongoing
$400 million modernization project,
ﬁnanced by another EBRD loan.

India’s KEC International said
in January that it has signed
agreements to rehabilitate
38 substations covering the
north-east and the south.
KECOG recently announced
that the EBRD is considering
a further loan of $166 million
to ﬁnance rehabilitation of
the Ossakarovka electricity
transmission line, which supplies
Astana and the Akmola region.

The Kokaral Dam on
Kazakhstan’s Aral Sea

Renewable energy
Kazakhstan possesses ﬁve operational hydroelectric plants,
which provide roughly 12 percent of production – with most
facilities sitting on the Irtysh River. Other renewables are
largely undeveloped, although Kazakhstan has potential in
renewable energy resources, which could be particularly
attractive in isolated rural areas. In March 2011, Central Asia
Green Power, an Italian/Turkish joint venture, agreed on a $1
billion project to build two wind farms to help alleviate the
shortage of power in the south of the country.
In 2009, over KZT65 billion ($446 million) was
invested in the electricity sector, not including funds

allocated from the central and local budgets. In 2010,
investment of more than KZT85 billion was planned, solely
in the renovation of power plants.
Among the largest investments under way are the Moinak
hydro power station (partly ﬁnanced by the EBRD), the
expansion and reconstruction of the Ekibastuz hydropower
station-1, the third power unit of the Ekibastuz hydropower
station-2 and the Balkhash thermal power plant – in which
South Korea has agreed to invest $3.8 billion. n
INVEST IN KAZAKHSTAN 2011

99

102

ENERGY AND INFRASTRUCTURE

Renewable energy
gathers momentum

INVEST IN KAZAKHSTAN 2011

ENERGY AND INFRASTRUCTURE

As well as producing hydrocarbon fuels,
Kazakhstan is equally suited to generating
‘green’ power, whether it is solar, wind or
hydroelectric, although there is little uptake
for this so far. However, the United Nations
Development Program and the government are
encouraging industry to pursue alternative
energy, the latter via legislation. By Clare Nuttall

he last few months have seen numerous steps
towards generation of renewable energy in
Kazakhstan. Major new projects in wind and
solar power have been launched this year,
hydro construction is going strong and a law
on biofuels was adopted in late 2010.
One billion dollars will be invested into two wind farms
in the Zhambyl region of southern Kazakhstan in the next two
years. An agreement was signed in March 2011, between the
Zhambyl regional authorities, power companies KEGOC and
ZhES, and Central Asia Green Power – a joint venture between
Visor Group and the Turkish subsidiary of Italy’s Relight Group.
The two wind farms will generate a total of 600 megawatts
(MW) of electricity, helping to reduce the region’s dependence
on power imports from neighboring Uzbekistan, the Zhambyl
regional authorities said in a statement.
In another stunning development, Kazakhstan’s national
nuclear company Kazatomprom has started building a solar
panel plant in Astana. Kazatomprom started laying foundations
for the plant in March. The plant will cost around $230 million
to build, President Vladimir Shkolnik told the Senate
Committee on Social and Cultural Development on March 14.
It will have an initial capacity of 50MW of solar-cell panels
and may be increased to 100MW in the future.

T

INVEST IN KAZAKHSTAN 2011

103

104

ENERGY AND INFRASTRUCTURE

Reducing the use of fossil fuels, especially for the combined
heat and power plants used for heating and hot water in
many cities, will help to improve air quality in urban areas
Kazakhstan is well-endowed with oil, gas and coal.
The country also has high potential to reduce its dependence
on fossil fuels, by investing in wind, solar and hydro power
generation. The country has been generating hydropower
since the Soviet times, but solar power, wind energy and
biofuels have only recently been added to the energy mix,
having previously existed on a very small scale.
These days, exciting changes are taking place. The
United Nations Development Program (UNDP) has been
operating the Wind Power Market Development initiative, a
full-scale project to promote the development of the wind
energy market in Kazakhstan. The UNDP released results
from a survey of wind power potential in Kazakhstan in early
2011. Finnish company VTT presented its report on wind
energy development in Kazakhstan, demonstrating the
favorable conditions in the country.
However, the percentage of electricity to be generated by
wind power is still to remain quite low. “The foreseen wind
power scenarios would mean about 250MW production in
2015 and about 2,000MW production in 2030. The wind
power penetration level is quite moderate: less than one
percent of electrical energy in 2015 and about four percent
in 2030,” according to a statement from the UNDP.
There is also growing Chinese interest in wind-energy
projects in Kazakhstan. In December 2009, Kazakhstan and
China signed an agreement on cooperation in the renewable
energy sector. China Guandong Nuclear Power Co (CGNPC)
has agreed on a wind-power cooperation program with state
fund Samruk-Kazyna.
Kazakhstan’s climate is also highly suitable for solar
power, especially in the south. In July 2010, a raft of deals,
amounting to more than $2.8 billion, were signed during
German Chancellor Angela Merkel’s visit to Kazakhstan. Among
these was the announcement that German energy company Roth
& Rau is planning to build Kazakhstan’s ﬁrst solar power plant.
Alternative energy received a boost in June 2009 when
a law on support for renewable sources of energy was adopted.
This will help Kazakhstan to use its abundant oil and gas
reserves to generate export revenues, while it uses other forms
INVEST IN KAZAKHSTAN 2011

of energy for domestic consumption. Reducing the use of
fossil fuels, especially for the combined heat and power
plants used for heating and hot water in many cities, will help
to improve air quality in urban areas.
Renewable energy is also a way to ensure that all areas
of the country, including remote rural regions, have a reliable
power supply. Kazakhstan’s coal mines and many of its power
plants are in the north and center of the country, while oil and
gas is concentrated in the west. Meanwhile, south Kazakhstan
at times relies on exports from neighboring Kyrgyzstan and
Uzbekistan to make up the energy deﬁcit. Small-scale wind
and solar plants could also be used to power areas of
Kazakhstan not connected to the national grid.
Of the KZT2.3 trillion ($15.6 billion) the Kazakh
government is planning to invest into the power sector by
2015, KZT107 billion has been earmarked for renewable
energy projects, Duisenbai Turganov, Deputy Minister of
Industry and Trade said in October 2010.
New legislation speciﬁcally focused on biofuels has also
been adopted. The law, which came into being in 2010, is
intended to encourage the production of biofuels. It also seeks
to balance the need for raw materials for biofuel production
with Kazakhstan’s food security.
As of 2010, there was only one biofuel plant in
Kazakhstan, but the potential size of the market is considered
to be large. The Kazakh government announced plans to
produce 2.8 billion liters of biofuel this year, to be increased
to 3.08 billion liters in 2012 and 3.22 billion liters in 2014.
Meanwhile, hydropower continues to be an important
component of electricity generation in parts of the country.
When the Moynak cascade – being built with Kazakh and
Chinese investment in south-east Kazakhstan – is completed,
this will ensure a steady electricity supply for Almaty and other
parts of south-east Kazakhstan.
Other projects are planned. In November 2010,
Samruk-Energo – a division of Kazakhstan’s state holding
company Samruk-Kazyna – announced plans to seek Chinese
investors to complete the expansion of the Shardarinskaya
hydropower plant on the Syr Darya River in south Kazakhstan. n

ENERGY AND INFRASTRUCTURE

Infrastructure –
building a new backbone

One of Kazakhstan’s latest
completed projects – the
Modern Bridge at Astana

Necessity is the mother of invention, so it
is said. Kazakhstan’s need for a nationwide
framework for transportation and
communication links will beget solutions,
one way or another. By Tim Gosling

azakhstan’s rapid economic development is
provoking massive infrastructure spending across
the sectors, as it races to build the new oil and
gas pipelines, electricity generation capacity, and
roads and railways needed to both expand and
diversify the economy. As there is also keen need to upgrade
existing infrastructure – much of which dates from Soviet
times – builders and suppliers are at the core of the country’s
future development and appeal.
As the driving force of the economy, the still-developing
oil and gas sectors are driving massive infrastructure
investment, particularly for transit to export markets, while
new electricity generating and transmission – which is at the
core of government strategy to diversify the economy – calls
for investment of at least $20 billion by 2015. Elsewhere,

K

infrastructure investment requirements to 2030 are expected
to top $25 billion, with roughly 40 percent going to the
railways, 25 percent to telecommunications, 23 percent to
roads, and 12 percent to water and air transport.
However, alongside the headline projects is the ongoing
development of the country at ground level. The deputy mayor
of Almaty told a recent conference of city’s need for huge
volumes of high-quality construction materials to drive city
projects for the construction of over one million square miles of
housing a year, as well as nearby hospitals and schools. The ﬁrst
section of the city’s metro system is also nearing completion.
According to a report from Business Monitor International,
the construction sector is expected to grow 5.5 percent year
on year in 2011, to make the market worth $10.6 billion.
Growth is then forecast to accelerate to an average rate of
7.1 percent each year to 2015, when the sector could hit
$24.4 billion. The construction and materials sector is
almost completely privatized, with the government open to
100 percent foreign ownership. Despite existing large
investment from international companies, increased foreign
investment – in the construction materials industry, in
particular – is a government priority.
INVEST IN KAZAKHSTAN 2011

105

106

ENERGY AND INFRASTRUCTURE

In 2009, many projects came to a
standstill. The following year cement
consumption increased 100 percent

Oil and gas
Not only does Kazakhstan’s rapid development of its oil and
gas ﬁelds provide the gross domestic product boost to drive
infrastructure investment across the economy, but it is directly
responsible for many of the major construction projects.
On the one hand is the large-scale expansion of its major
oil and gas ﬁelds, such as Karachaganak and Tengiz, both of
which target close to 100 percent production boost in the next
few years. On the other, that output will need new pipelines to
carry it to export markets, and new reﬁning capacity to process
it for the domestic market.
Kazakhstan only started being a net exporter of natural
gas in 2009, so development is nascent due to the lack of
domestic pipeline infrastructure linking the western producing
region with the eastern industrial province.
Prime Minister Karim Massimov said in October that
the country plans to boost its crude exports by almost
200 percent by 2020. Both of these development targets
will require major investment in infrastructure projects such
as expansion of the Kazakhstan-China gas pipeline (set for
completion by 2014), the $5.4 billion expansion of the
Caspian Pipeline Consortium (CPC) oil link to Russia, and
development of the Kazakhstan Caspian Transportation System
(KCTS), which requires a 500,000-barrels-per-day (b/d)
pipeline and 760,000-b/d terminal on the Caspian Sea.
Meanwhile, the country still imports oil products due to
a lack of reﬁning capacity. However, KazMunaiGas has plans
to invest up to $4 billion to modernize the country’s three
reﬁneries and boost output to meet domestic demand.
At the same time, exports of mining products are also
growing – especially to the rapidly developing regions of
western China. These bulk products rely overwhelmingly on
rail, water transport and roads, giving even more of a boost to
investment in transport infrastructure.

Transport
With the aim of upgrading both the national transport network
and knitting the Kazakh system into international networks
INVEST IN KAZAKHSTAN 2011

that run from the Paciﬁc coast of China through to Western
Europe, the Strategy of Transport Sector Development to 2015
calls for investment of $26 billion, the majority going to
upgrade and expand the country’s railways and roads.
Major projects include the South-West Roads project –
a $7.5 billion scheme to build and upgrade 2,800km of
highway to link China (at Khorgos) to Russia (at Zhaisan) as
part of an International Transit Corridor running from Western
China to Western Europe. Also in 2011, China signed up to
construct a 1,000km high-speed rail line. Trains will be built
to carry around 5 million passengers per year between
Kazakhstan’s two major cities – the capital Astana and
economic center Almaty – at speeds of about 350km/h. The
project, which China’s vice premier labeled “a new highlight
of cooperation” is forecast to be completed by 2015.

Power
Investment in expanded generating capacity is a matter of
urgency in Kazakhstan, as a deﬁcit in supply is threatening to
drag on economic growth. The government’s Plan of Energy
Sector Development 2007-2015, calls for investment of at
least $14.3 billion to upgrade existing power plants and add
up to 2,430-2,550 megawatts of new capacity.
At the same time, the country needs to pump huge
investment into its transmission grid, to smooth regional
imbalances and raise its potential to earn revenue from
exports in the future.

Building materials
With multibillion-dollar infrastructure projects both funded
and in progress, as well as lining up in the pipeline, there
is now an emphasis on raising domestic capacity for
construction materials from cement to steel and glass.
Foreign investment is welcome.
Given the huge distances between cities and regions,
local companies tend to dominate the national markets –
Steppe Cement, for example, is closest to fast-growing Astana
and industrial Karaganda, while Italcementi in Shymkent is
well placed to supply the new highway to China.
According to industry ﬁgures, Kazakhstan increased
consumption of cement by 100 percent last year compared
with 2009, for a total of six million tons. Domestic production,
however, struggled to keep up, only managing to boost output
from four million tons to 5.3 million tons in the same period.
Consumption is expected to remain buoyant, thanks to the
huge infrastructure investment drive, with consumption to hit
6.5 million tons by 2013. n

ENERGY AND INFRASTRUCTURE

Stronger demand for
construction materials
Building on the insatiable demand for
manufacturing materials, Kazakhstan has a
job and a half keeping up with the demands
of various projects as the economy improves.
By Clare Nuttall

azakhstan’s cement producers are investing in
increased capacity to keep pace with demand,
driven by major infrastructure projects. In 2011,
the ﬁrst post-crisis residential developments are
also expected to start, further boosting
consumption of construction materials.
Cement consumption was twice as high in 2010 as in
2009, to a large extent owing to the government’s anti-crisis
program. Six million tons of cement were consumed in the
country last year, according to industry ﬁgures. However,
domestic production was unable to keep up, with local
producers able to increase their output from four million tons
in 2009 to only 5.3 million tons in 2010. Demand is expected
to continue rising as Kazakhstan leaves the crisis behind,
reaching 6.5 million tons by 2013.

K

The growth potential for Kazakhstan’s cement market is
substantial, Adal Issabekov, CEO of United Cement Group, told
the BusinessCem conference in Almaty. Currently cement
consumption per capita is just 317 kilograms a year in
Kazakhstan, compared with 2,600kg in Saudi Arabia, 453kg
in Germany and 3,978kg in the US. Consumption is even
lower in the other Central Asian republics, so there is
considerable scope for the growth of the regional market.
“We reduced production volumes owing to the economic
slowdown. However, now we can actively see and feel the
economies improving and cement consumption climbing,”
said Issabekov. “Due to the relatively low level of consumption,
there is a niche for us to be able to increase consumption in
the countries where we are present.”
An important component of Kazakhstan’s multibilliondollar anti-crisis program, adopted in late 2008, was a
commitment to fund major infrastructure projects. These
provided employment for tens of thousands of workers, thus
keeping unemployment down, as well as the long-term beneﬁts
of improving transportation and other infrastructure.
One of the largest projects ongoing in Kazakhstan is
the Western Europe-Western China international transit

INVEST IN KAZAKHSTAN 2011

107

108

ENERGY AND INFRASTRUCTURE

Annual cement consumption per capita

5,732 lb
(2,600kg)

1,000 lb

Saudi Arabia

(453.6kg)

877 lb

Germany

(397.8kg)

700 lb

United States

(317.5kg)
Kazakhstan

corridor, which runs via Kazakhstan, and has been funded by
several international ﬁnancial organizations. The South-West
Roads Project will see the reconstruction of the highway
between Aktobe in west Kazakhstan and Shymkent in south
Kazakhstan, and is due to be completed in 2013.
Kazakhstan’s national rail operator, Kazakhstan Temir
Zholy, embarked upon a $36 billion modernization and
expansion program in mid 2009. More recently, in February
2011, Kazakhstan and China signed an agreement to
cooperate on the construction of a new high-speed rail link
between Astana and Almaty.
Numerous projects are also under way in the energy
sector, including construction of the Moinak hydropower
cascade, expansion of the Ekibastuz GRES-2 power plant
(with funding from the Eurasian Development Bank and
Russia’s Vneshekonombank – VNB), and the building of a
new thermal power plant near Lake Balkhash.
The construction of affordable housing in major cities is
also being supported by the state. In May 2010, the head of
the Residential Building Agency, Serik Nokin, announced
that state-owned Zhylstroisberbank would ﬁnance residential
construction projects where apartments would be sold at
between $600 and $950 per square meter. The government
is providing land and infrastructure for the buildings, while
Zhylstroisberbank is drawing up lists of potential buyers.
New residential developments have been put on hold for
several years, as the government has decided to restrict the
issuance of new permits until pre-crisis projects were
completed. Real-estate professionals forecasts that 2011 will
see the ﬁrst post-crisis projects being launched.
Meanwhile, several new cement plants in Kazakhstan are
under construction and others are being expanded. While
investment plans were put on hold during the crisis, the
INVEST IN KAZAKHSTAN 2011

doubling of demand in 2010 compared with the previous year,
and the expected increase this year and for the next few years,
has encouraged cement producers to revive their plans.
Six new cement plants with new capacity amounting
to 5.3 million tons are being planned by Germany-based
Heidelberg Cement CEE, said the ﬁrm’s general manager
Roman Kempe, speaking at the BusinessCem conference
in Almaty in October 2010. “The question is when they
will be launched. The dates are not very realistic, but
they will probably start operation in the next three to
four years,” he said.
The Kazakh government announced plans in 2010 to
help develop the industry by supporting the construction of
new production facilities. Those already in the works include
the Italian Italcementi Group’s September 2010 decision to
invest in dry-line clinker production at its Shymkent Cement
plant. The new line will replace four existing wet lines,
allowing the company to cut energy costs. Shymkent Cement
would become the second plant in Kazakhstan to use dry-line
production, which is more environmentally friendly than
wet-line production. Steppe Cement was the ﬁrst to introduce
the technology, followed by Zhambyl Cement, which started
operating its dry-line in December 2010.
In May 2010, Moscow-based BaselCement-Pikalevo
completed the reconstruction of the third production line at its
Sas-Tobe cement plant. Following this $10 million project,
BaselCement plans to continue further reconstruction work at
the cement plant, the ﬁfth largest in Kazakhstan. SAS-Tobe
is expected to increase production by 26 percent to
0.5 million tonnes in 2011.
In addition to cement, production of other construction
materials – ranging from steel to glass – is also expected to
increase in Kazakhstan. n

110

ENERGY AND INFRASTRUCTURE

Real estate
rebuilds toward
recovery

Modern skyscrapers in Astana,
Kazakhstan. New projects are expected
to commence now that pre-crisis
construction has been completed

In the aftermath of the burst property
bubble, investors are perusing Kazakh real
estate again – though they are more cautious
this time and have more realistic expectations.
Clare Nuttall reports

azakhstan’s troubled real-estate sector is
recovering from the crisis. After an injection of
government funds, projects started in the mid
2000s are ﬁnally being completed, and those
developers that survived the downturn are
expected to start the ﬁrst set of post-crisis projects in 2011.
The problems in Kazakhstan’s real estate sector were
ultimately due to the country’s underdeveloped ﬁnancial
market. When people became wealthier in the mid 2000s,
the question for newly rich Kazakhs was where to invest their
money. With the stock market still relatively illiquid, the

K

INVEST IN KAZAKHSTAN 2011

obvious answer was property. This created a speculative bubble
in the real-estate sector, with prices in Almaty brieﬂy soaring
above those in London in early 2007. However, when the
sub-prime crisis broke in the United States in mid 2007,
Kazakhstan was one of the ﬁrst countries to follow. The
bursting of the real estate bubble had knock-on effects for
the banking sector, where a high proportion of collateral was
in property that had suddenly collapsed in value.
As in many other countries, it has taken more than three
years for the banks and property developers to work through
these issues. Banks are quietly selling off collateral, as they
tackle their portfolios of bad loans. In the real-estate sector,
some projects were simply abandoned, leaving empty lots
across Almaty. In other cases, future residents had pre-paid for
their apartments in projects that were often little more than
a hole in the ground when the bubble burst.
Alarmed at the protests by angry ‘dolshiki’ (or ‘interest
holders’), as they were known, the government was quick to be

ENERGY AND INFRASTRUCTURE

The prospects for the real-estate and construction sectors
are good. New investments are urgently needed to house
a growing, and increasingly afﬂuent, population
proactive, stepping in with a rescue package for the sector to
ensure that projects would be completed.
The government also decreed that no new construction
licenses would be issued until ongoing projects were
completed. Now, as the delayed projects in Almaty – and,
to a lesser extent, Astana – near completion, developers
are starting to consider their ﬁrst post-crisis projects.
In another sign of the market returning to normal, the
number of transactions in the real estate market is increasing.
According to Russian investment bank Renaissance Capital,
the number of transactions was up 13.4 percent in January
2011, compared to a year before.
“The real-estate market is slowly starting to crawl out
of the crisis,” says Peter Goranov, senior manager at CBRE
Richard Ellis. “The crisis practically killed the mortgage
market, but now we see signs it is recovering. People are
making their repayments in a disciplined fashion, and some
new mortgages are being issued.”
Long term, the prospects for the real-estate and
construction sectors are good. There is a very obvious need
for more housing in Kazakhstan. In Almaty, living space per
person is just 16 sq m, compared to 48 sq m in Western
Europe. Across the country, much of the housing stock,
inherited from the Soviet era, is outdated and in a poor state
of repair. New investments are urgently needed to house a
growing, and increasingly afﬂuent, population.
Part of the problem pre-crisis was that a lot of the
projects were simply not realistic. Aimed at the small tranche
of high-net-worth individuals, many of those that have been
completed are still largely empty. However, there are
exceptions, such as the AhselKent development on the
outskirts of Almaty, which opened in 2010.
At the other end of the spectrum, Capital Partners has
continued to push ahead with landmark developments such as
the Esentai Park mixed-use project and the infrastructure for
the 2011 Asian Winter Games at the Shymbulak and Medeo
winter sports resorts. Meanwhile, in the retail sector, Eurasia
RED opened A’port, Central Asia’s largest mall, in Almaty in
2009, and is planning a chain of malls across the country.

The 2011 Asian Winter
Games in Astana prompted
new building investment

There are hopes that post-crisis projects will be tailored
to the needs of the population. Today, investors are much more
cautious having had their ﬁngers burned by Kazakh real estate
once before. “Kazakh banks have been looking to re-enter the
real estate sector, but only for intelligent schemes with the
right end users,” says James Palmer, partner at global property
consultant Veritas Brown Cushman & Wakeﬁeld. He forecasts
that investment will increase signiﬁcantly in 2011.
Construction work has continued in Kazakhstan’s
capital Astana. The most spectacular development in
Astana is Khan Shatyr, a temperature-controlled biodome
shaped like a massive tent, in which Astana residents can
bask in summer temperatures – even when winter
temperatures in the city plunge below minus 40°C. More
prosaically, Astana has seen large-scale road rehabilitation,
house and ofﬁce building, new hotels and the construction
of stadia for the Asian Winter Games.
West Kazakhstan is also developing rapidly. The start
of the next phase of the Kashagan project will see the inﬂux
of numerous workers this year. “We tend to look at west
Kazakhstan as having more potential in the immediate future,”
says Capital Partners managing director Matthew Bond.
“We expect to see a rally in prices soon, especially as there
is a shortage of high-quality residential space and class-A
ofﬁce space in both Atyrau and Aktau. The region has been
largely immune to the crisis that affected the rest of the
country since it is oil-focused.” n
INVEST IN KAZAKHSTAN 2011

111

114

ENERGY AND INFRASTRUCTURE

A new hub for road
and rail transportation
Kazakhstan stands at the
crossroads of the Eurasian land
mass, and is now promoting
investment in its roads and rail
to take advantage of its location.
By Tim Gosling

tanding at the crossroads of Asia,
Russia, Europe and the Middle
East, a revolution is under way in
road and rail construction across
the vastness of Kazakhstan.
A modern highway linking China to Russia
along the Caspian Sea and through to Europe
mimics the energy infrastructure that is
turning Kazakhstan into a linchpin of the
region. New rail links to China and south
through Turkmenistan to Iran connect with
the Soviet-era north-south lines from central
Asia to Moscow.
All this pitches Kazakhstan at the center
of trade ‘ley lines’ that stretch across the
Eurasian land mass north to south and east to
west. Essentially, there is no alternative for
rapidly growing Asian exporters, such as
China, to link to Russia and Europe across
land, other than to pass through Kazakhstan.
Starting in January 2013, Kazakh companies
will be granted non-discriminatory access to
rail routes in Russia and Belarus under the
auspices of the Common Economic Space
between the three.
The country’s new and upgraded road
and rail links will not only raise income from
international transit trafﬁc, but will also

S

INVEST IN KAZAKHSTAN 2011

improve Kazakhstan’s internal links, which are
needed to tie its rapidly developing economy
together. The sheer size of this landlocked
country – studded as it is with an uneven
distribution of population clusters and natural
resources – makes the transport sector a vital
cog in the national economy.
However, the country’s transport
infrastructure – the majority inherited from
the Soviet era – is in need of further
investment to improve efﬁciency and reduce
the burden of transportation costs on the
economy, which at between eight and 11
percent of the ﬁnal cost of goods is around
double the European Union (EU) average.
Alongside other CIS countries, Kazakhstan
hopes to attract a signiﬁcant slice of cargo
transit between the EU and Asia, a market
worth in excess of $600 billion per year,
according to the International Monetary Fund.

A decade of transport investment
The strategy for development of Kazakhstan’s
transport infrastructure is set out by a
government program approved in 2006: the
Strategy of Transport Sector Development to
2015. The program calls for investment of
$26 billion across its 10-year span.
Implementation of the program is
expected to upgrade the regional networks,
bringing Kazakhstan’s national transport
system in compliance with worldwide
standards. The plan is to boost the level
of transit trafﬁc across the country and,
thereby, increase both the central government
budget and transport company revenues.

ENERGY AND INFRASTRUCTURE

Essentially, there is no alternative for rapidly
growing Asian exporters to link to Russia
and Europe across land, other than to pass
through Kazakhstan

Kazakhstan’s upgraded road and rail links will not
only raise income from international transit trafﬁc,
but will also improve Kazakhstan’s internal links

INVEST IN KAZAKHSTAN 2011

115

116

ENERGY AND INFRASTRUCTURE

s In October 2010, a joint venture between
France’s Alstrom and Russia’s Transmasholding
won an order worth $1.3 billion from national
rail company Kazakhstan Temir Zholy to supply
295 new locomotives.

The strategy covers road, rail, air and water carriage, as
well as urban passenger transport, and provides for upgrades
and new projects, as well as the renewal of all transport ﬂeets.

Investment
The transportation and telecommunications sectors will need
to grow in order to accommodate the needs of other industries.
Growth here is likely to attract further investment in other
sectors as these infrastructure changes improve the overall
business climate. Although Kazakhstan has a basic
transportation network and skilled labor force, investment
will be required in the years ahead. Requirements for
infrastructural investment through 2030 are expected to total
more than $25 billion – and, of this, 40 percent will be needed
for railway transportation, 23 percent for highways and motor
transport, and 12 percent for air and water transport systems.

Driving transport infrastructure investment
With the transport sector a top priority, the government has
been working on legislation, conditions and institutions to
provide incentives for long-term investment.
The concessions system in Kazakhstan has gradually
been developed since the fundamental legislation was adopted
in 2006, the ﬁrst project being the Shar-Oskemen line that
opened in December 2008.
The government has learned lessons from an attempt to
launch public-private partnership projects on four new roads in
2009 – which fell through due to the ﬁnancial crisis – and has
been working for several years to get the legal framework right.
It has set up the Kazakhstan Public-Private Partnership Center
and developed a concept through to 2020, which will include
a list of all projects to be put out to tender. Legislation now
allows the government to offer guarantees, not only for
infrastructure bonds and loans, but also on consumption of a
percentage of the service provided by concessionaires.
Major investment projects under way include:
s The World Bank has committed $2.1 billion to building
the 1,062km Kazakh stretch of an International Transit
Corridor linking Western Europe to China.
s In February, China signed up to construct a 1,000km
high-speed rail line which will see trains carry around
ﬁve million passengers per year between the capital
Astana and economic center Almaty at speeds of up
to 350km/h. The project, which China’s vice premier
labeled “a new highlight of cooperation” is forecast
to be completed by 2015.
INVEST IN KAZAKHSTAN 2011

Rail
Railway services provide up to 70 percent of cargo and
50 percent of passenger turnover in Kazakhstan. The
total length of railway track in the country exceeds
14,000km and connects all regions, as well as providing
a backbone for international transportation services via
three main routes:
s The 1,507km Trans-Kazakhstan Railway runs from
Petropavlovsk on the Trans-Siberian Railway through
Kokchetav, Astana and Solonichki to the Karaganda
coalﬁeld. This was later extended to Chu, on the
Turkestan-Siberian route, and Lugovoy where it
connects with lines into Kyrgyzia and Uzbekistan.
s The Turkestan-Siberian route runs 1,445km and
forms part of a route from Beijing to Russia. This,
the Trans-Asian route, provides a Japan-Western
Europe link that is claimed to be 2,500km shorter
than the Trans-Siberian route.
s A third main line links Tashkent in Uzbekistan, with
Orenburg in Russia, via Aralsk, Kandagach and
Aktyubinsk, a distance of 1,854km.

Roads
Much of the road network in Kazakhstan was constructed during
the Soviet era and has deteriorated since then, due to lack of
adequate maintenance. Half of the roads in the country’s
network need major maintenance or full rehabilitation.
There are close to 89,000km of road in Kazakhstan,
13,000km of which link to international routes in Asia and
Europe. In terms of highway construction, it is these
international connections that are the major focus, as the
country looks to increase its role in transit between China,
Russia and Western Europe.
Under the South-West Roads Project, a $2.1 billion
World Bank loan will go towards building and upgrading
2,800km of Kazakh roads linking China (at Khorgos) to
Russia (at Zhaisan). The government plans to spend a total
of $7.5 billion to tie Kazakh routes into the International
Transit Corridor linking China to Russia and on to Western
Europe. The World Bank predicts that the project will “give
a major stimulus to the Kazakh economy.” n

118

ENERGY AND INFRASTRUCTURE

Getting there

The capital, Astana, has one of Kazakhstanâ&#x20AC;&#x2122;s two modern
international airports. The country has seen a steady rise
in international airlines serving the country, while the
national carrier, Air Astana, has expanded rapidly

INVEST IN KAZAKHSTAN 2011

ENERGY AND INFRASTRUCTURE

New and enhanced air, road and rail
facilities are helping to put Kazakhstan on
the map in terms of international transport.
By Clare Nuttall

azakhstan’s geographical location at the heart
of the Eurasian land mass not only puts it in
prime position to serve as a road and rail hub –
it also makes it a perfect gateway for air travel,
and investment in airports and associated
infrastructure is starting to make this a reality.
Kazakhstan has witnessed a steady increase in
international airlines serving the country, while national
carrier Air Astana has rapidly expanded since its launch in
2002. A joint venture between Kazakhstan’s national welfare
fund Samruk-Kazyna and BAE, Air Astana announced in
November 2010 that it would spend $500 million on
expansion of its ﬂeet of aircraft by 2015.
In April 2011, the airline took delivery of its ﬁrst
Embraer 190. There are also plans to purchase six Airbus
A320 aircraft at a total cost of $250 million, Air Astana
president Peter Foster announced.
Between November 2010 and June 2011, Air Astana
added seven new international routes to its network. The
airline now operates ﬂights from Almaty to new destinations
including Dushanbe and Tashkent in Central Asia, the Georgian
capital Tbilisi, and Samara in southern Russia. Launching the
services is part of Air Astana’s strategic plan to signiﬁcantly
expand its Central Asia network, the airline said in a statement.
It already serves Bishkek, Urumchi in western China, several
Russian cities, and destinations in Europe and the Far East.
Air Astana is the only Kazakhstan-registered airline
authorised to ﬂy to the European Union, as all other
Kazakhstan-registered airlines are on the EU’s air safety
blacklist. However, Kazakh authorities are currently in
negotiations with the European Commission over this matter.
International airlines such as KLM, Lufthansa and
Turkish Airlines have long been present in the Kazakh market.
But there have been more recent arrivals, including UAE-based
Etihad Airways, which launched its ﬁrst ﬂight from Abu Dhabi
to Almaty in December 2008, and others are expected to
follow. On a visit to Astana in June 2011, Malaysia’s foreign
minister Datuk Seri Anifah Aman indicated that a Malaysian
airline – possibly Malaysia Airlines or AirAsia – might start
operating ﬂights between the two countries. The Almaty-Kuala
Lumpur route is currently served by Air Astana.

K

There are also high hopes in Astana that Kazakhstan
could become an air freight logistics hub. Fedex and other
freight companies increasingly use Kazakh airports for
refueling and distribution within the region. However,
Kazakhstan faces competition, as both Russia and
Uzbekistan also want to establish their own Eurasian
logistics hubs, based around the airports of Krasnodor
and Navoi respectively.
Kazakhstan already has modern international airports
at its capital Astana and at Almaty, the country’s largest city
and commercial centre. Air infrastructure is also being
upgraded – air navigation service provider Kazaeronavigatsia
is investing in new technology.
The agency has signed a series of contracts with
Lockheed Martin for air trafﬁc control equipment and services.
Most recently, in October 2010, Kazaeronavigatsia signed a
$49.9 million deal with the US-based security ﬁrm to create
Kazakhstan’s ﬁrst national air trafﬁc management system.
For international business travelers, entry to Kazakhstan
is usually by air. However, great efforts are being made to
upgrade international road and rail links for freight transport,
with the rebuilding of a modern version of the ancient Silk
Road between Asia and Europe.
The Kazakhstan section of the Western Europe-Western
China international transit corridor is 2,715km long, and runs
from the Russian border in the north west to the Chinese
border in the southeast. Funds for the project are being
provided by international ﬁnancial organizations, including the
Asian Development Bank and the World Bank.
Meanwhile, Kazakhstan’s national rail company,
Kazakhstan Temir Zholy, has launched an overhaul of the
country’s railway network and rolling stock, intended to speed
up transport within the country and facilitate international
transit. The current most important international project is the
construction of the Kazakhstan-Turkmenistan-Iran railway. The
Kazakhstani section of the line will run from the oil town of
Uzen in the western Mangystau region to the Turkmen border.
Opening the line will cut the travel distance between
Central Asia and the Persian Gulf by more than 360 miles,
creating huge opportunities for the three countries and others
in the region, Kazakhstan’s ambassador to Iran, Bagdat
Amreev, told the Kazakhstan Islamic Finance 2011
conference. The line “will signiﬁcantly change the situation for
trade and economic cooperation in the region”, said Amreev.
Not only is new infrastructure being built, but there are
also investments in locomotive and rolling-stock production,
and in new vehicle-manufacturing capacity. In Astana, a cluster
INVEST IN KAZAKHSTAN 2011

119

120

ENERGY AND INFRASTRUCTURE

Kazakhstan develops into China-to-Europe transit hub

Airports:

97

(2010)
Country comparison with the rest of the world: 62

3
Airports – with paved runways: 65
Heliports:

(2010)

Airports – with unpaved runways:

More than
3,047m

2,438 to
3,047m

1,524 to
2,437m

914 to
1,523m

10

26

16

5

Less than
914m

More than
3,047m

8

5

2,438 to 1,524 to 914 to
3,047m 2,437m 1,523m

6

3

5

32
Less than
914m

13
(2010)

(2010)

Pipelines:

Condensate

Gas

Oil

Reﬁned products

658km

11,146km

10,376km

1,095km
(2009)

Railways:

15,082km

Ports and terminals:

Country comparison to the rest of the world: 19

Aqtau, Atyrau, Oskemen, Pavlodar, Semey

Broad-gauge: 15,082km, 1,520mm gauge
(3,700km electriﬁed) (2008)

Roads:

93,612km

Waterways:

Country comparison with the rest of the world: 50

Paved

Unpaved

84,100km

9,512km

4,000km; on the Ertis River (80 percent) and
Syr Darya River (2010). Country comparison
with the rest of the world: 26

(2008)

of rail-related factories has grown up, with investments
from international manufacturing companies Alstom, GE
Transportation and Talgo.
Demand for cars is also growing, following Kazakhstan’s
emergence from the global economic crisis. In the car market,
Asia Avto, operator of Kazakhstan’s largest car assembly plant,
INVEST IN KAZAKHSTAN 2011

announced in April 2011 that it had achieved an increase of
more than sixfold in production during the ﬁrst quarter of
2011, compared with the same period in 2010. Russia’s
Sollers signed an agreement to set up an assembly plant in
Karaganda in 2010, and plans to start producing SUVs (sport
utility vehicles) in the second half of this year. n

ENERGY AND INFRASTRUCTURE

Almaty station. High-speed Alstom trains will
reduce journey times to Astana by three hours

Rail reforms will
support diversiﬁcation
In an echo of the Industrial Revolution in
western Europe, the resurgence of
Kazakhastan’s railway system promises to be
a catalyst for future growth.

n June 5, 2010, the mayor of Kokshetau
proudly cut the ribbon on a new high-speed rail
connection linking his town with the capital
Astana. The new link is the third high-speed
rail service running the Spanish-made Talgo
trains that cut the journey time in half and effectively shrink
the country for much of the population.
Of all the efforts to diversify the economy, modernizing
the rail system is arguably the most advanced. Talgo Passenger
trains already link Astana to Almaty and Shymkent as part of
the state’s program to build a high-speed rail network that will
eventually link up with destinations in surrounding countries.

O

The high-speed rail links are only the tip of the iceberg
of a reform program that will transform Kazakhstan’s rail
infrastructure. The Kazakh government is promoting the
development of a domestic railway supply industry, and the
national rail company Kazakhstan Temir Zholy (KTZ) has
signed agreements with major foreign suppliers, including
Alstom, Finmeccanica, Transmash and GE Transportation.
Kazakhstan is the size of Western Europe and its rail
network is the lifeblood of the country. With more than
15,000kms of track, Kazakhstan has the 19th largest rail
system in the world. But thousands of kilometers of new
rail lines are needed, and obsolete Soviet-era locomotives
and wagons are in need of replacement.
In the days of the Soviet Union, Kazakhstan imported
its rail network equipment from Russia. Now it will build its
own, in a prime example of diversiﬁcation. A string of deals
has already been put in place, to add to the country's
heavy-engineering sector.
INVEST IN KAZAKHSTAN 2011

121

122

ENERGY AND INFRASTRUCTURE

The ﬁrst new plant to assemble powerful General
Electric (GE) designed American diesel-electric locomotives
and shunting engines has already opened in Astana. During
French president Nicholas Sarkozy’s ofﬁcial visit in 2010,
the French high-speed rail specialist Alstom signed off on a
$1.8 billion deal to build 300 electric freight locomotives in
cooperation with Russia’s Transmashholding.
Talgo says that the KTZ contract is part of an export
strategy focused on tapping demand for “high-speed and
high-performance” trains in Central Asia, India, China,
the Middle East and US.

GE’s close relationship with Kazakhstan
GE Transportation has been working with the Kazakh
government for more than 15 years. The US company started
its operations in 2009 with a deal to supply more than
400 locomotive kits to extend the working life of Kazakh
rolling stock. Over the years, the relationship between the
company and the government has grown ever closer and
culminated in April 2010, when GE signed a memorandum
of understanding (MoU) with the Kazakh state-owned JSC
Locomotiv and Kurastyru Zaut to develop 1,520mm-gauge
diesel-electric shunting locomotives for use in Kazakhstan.
The MoU was a major deal that will create the basis to
modernize the entire sector. Under the agreement, the joint
venture will initially build 150 locomotives, of which the ﬁrst
ﬁve are to be manufactured at GE’s Erie plant in the US and
will be ready for delivery in 2012.
Then, after a period of testing, the remainder will be
assembled from US-supplied kits at the Astana locomotive
plant, which was opened by Kazakh president Nursultan
Nazarbayev in July 2010 and rolled out its ﬁrst locally built
Evolution Series locomotive in December of the same year.
“I am extremely pleased to mark another milestone in
GE’s and Kazakhstan’s long and fruitful history of working
together,” said Lorenzo Simonelli, president and CEO of
GE Transportation, following the signing of the MoU. “The
current collaboration to design and deliver shunter locomotives
speciﬁcally designed for the Republic of Kazakhstan and
the 1,520mm region is a great example of how globalization
has opened up growth opportunities for GE.”
The deal with the Americans was quickly followed by
another agreement with French high-speed-train manufacturer
Alstom. In October 2010, KTZ, Alstom and Russian
engineering ﬁrm Transmashholding (TMH) set up a joint
venture for the supply of295 electric locomotives to the
Kazakh railway company.
INVEST IN KAZAKHSTAN 2011

Kazakhstan’s relations with France have been improving
steadily, and the $1.8 billion deal followed President Sarkozy's
visit to Astana in 2010. The agreement was signed in Paris in
the presence of the French president and his Kazakh
counterpart, President Nazarbayev.
The contract took effect in March 2011, and is the
ﬁrst to be won outside Russia by Alstom and Transmashholding
as part of the strategic partnership initiated by the two
companies in 2009.
In all, a total of 200 double freight and 95 passenger
locomotives have been ordered, both of which will incorporate
Alstom’s modern technology. The double freight locomotives
are among the most powerful in the world, with the ability to
tow up to 9,000 tonnes, and to run at speeds of up to
120km/h. The passenger locomotives are capable of running
at speeds of 200km/hour, which will reduce the journey time
between Almaty and Astana by three hours.
Alstom’s Belfort plant will deliver the ﬁrst freight
locomotives in 2012, and the ﬁrst passenger locomotives are
slated for delivery in 2014. The remainder will then be built in
Astana at a factory that is currently under construction and
due to be completed in 2012, before reaching its annual
production capacity of 50 double sections in 2016.

Talgo production and export
As well as conventional locomotives, Kazakhstan has also
started producing the Spanish Talgo high-speed trains,
both for use on its own network and for export across the
rest of the region.
The ﬁrst Talgo train assembled at the Astana plant will
roll out of the shed this year, after an MoU was signed in
June 2010 to form a joint venture between KTZ and Talgo.
Talgo announced an order to supply KTZ with 420
coaches on November 11, 2010 as part of the agreement,
that could see the national railway’s ﬂeet of 3,000 inter-city
vehicles replaced. The initial contract is worth more than
$430 million for the Spanish ﬁrm, with further revenue
expected from maintenance services and subsequent orders.
The ﬁrst coaches will be built in Spain until
production moves to a factory in Astana, which is due to
be completed in 2011 by the Tulpar Talgo joint venture
between Talgo and KTZ.
Askar Mamin, director of KTZ, said at the signing
ceremony: “We have started to build an assembly plant with
the Spanish company Talgo, which will produce 150 coaches
per year. The total length of the high-speed rail network will
grow from the current 1,300km to 2,700km in 2015.” n

126

BANKING AND FINANCE

In 2007, the necessary devaluation of the tenge
currency put extra pressure on the balance sheets of the
banking sector, which relied on the international capital
markets for a substantial part of their funding

Breaking the mold
Kazakhstan’s stance following the global
economic downturn not only kept it in
good stead in the long term, it could
provide a template for other economies.
By Marcia Favale-Tarter

he 2007 ﬁnancial crisis was a challenge for
Kazakhstan. The easy money conditions of the
past evaporated, as the global credit crunch that
followed the Lehman Brothers collapse caused
liquidity shortages that – combined with
deteriorating banking-sector asset quality – caused balancesheet pressures and reduced credit-intermediation activities.
Kazakhstan was also dealing with pressure on its international
reserves, given the neighboring currency devaluations. The
needed devaluation of the tenge currency further pressured the
balance sheets of the banking sector that relied on international
capital markets for a substantial part of its funding.
Kazakhstan was proactive in response to the ﬁnancial
crisis. On October 23, 2008, the government passed the
Financial Stabilization Law to support the stability and

T

INVEST IN KAZAKHSTAN 2011

resilience of the ﬁnancial system, and strengthened the
powers of the ﬁnancial authority. In addition, an
Anti-Crisis Plan ($10 billion) was devised and adopted
to support the ﬁnancial sector, SME, real-estate market,
agriculture and industrial-infrastructure sector.
In February 2009, it was clear that Alliance Bank and
BTA Bank would be unable to meet regulatory requirements.
At that point, Samruk-Kazyna – acting according to the new
law – took over control of these two entities to prevent a
disorderly collapse of these banks. Samruk-Kazyna also
acted to support KKB Bank and Halyk Bank. Liquidity –
through a mixture of capital injections, debt, and the
channeling of state-owned enterprise deposits – was directed
into the operations of these banks, allowing them to continue
to perform routine liquidity transactions.
The restructuring of the Kazakh bank had four pillars:
liquidity support, preservation of the sovereign’s ﬁscal proﬁle,
curtailment of moral hazard, and improvements in corporate
governance. In addition – and a driver of value given the
alleged fraud – asset recovery was enveloped into the
restructuring strategies of Alliance and BTA Bank. As a
result, asset-recovery notes were issued that allow, among

BANKING AND FINANCE

Kazakhstan did not set out to create a global benchmark
with its bank restructuring. However, its success is being
analyzed as a possible framework for other cases
other things, for the banks and creditors to beneﬁt from a
successful asset-recovery process.
Kazakhstan did not set out to create a global
benchmark when it undertook its bank restructuring. However,
its success is being analyzed as a possible framework for
other restructuring cases, which raises the question of
transferability of the Kazakhstan model.
What makes the Kazakh bank restructurings of note is
that most European banks that have restructured favored a
sovereign bailout. As a consequence, sovereigns have been
laden with debt, and have had to implement unpopular
austerity programs. Instead of following this model, in
February 2009 the Kazakh government took a decisive step
in restructuring its banks. Kazakhstan rejected the bailout
strategy, and also rejected a ‘bad bank-good bank’ framework.
Instead, it imposed a burden-sharing and a ‘true trade ﬁnance’
approach. Of the $15.74 billion in recapitalization needs,
$10.22 billion was the total creditor support exacted through
debt reduction (also known as ‘haircuts’).
As part of the restructuring package, creditors were
offered, according to their asset class, a mixture of cash,
debt, equity and asset-recovery notes – and Samruk-Kazyna
maintained majority ownership of each bank. What remains
to close the restructuring chapter is for the three banks to be
sold either through a strategic sale or through a capital market
transaction, or a combination of both.
As a result of the successful implementation of the
burden-sharing restructuring strategy, Kazakhstan avoided
the ‘beggar-thy-neighbor’ situation that often favors creditors
to the detriment of expansionary ﬁscal policies. Given the
burden-sharing approach, debt holders became partners in
the process of recapitalizing the banks. This allowed funds
to be channeled to the more productive activity of providing
liquidity to the banks, allowing for operations to be maintained
without impairing the sovereign.
The strategy is deemed successful, not only for
alleviating sovereign ﬁscal pressures and hard-currency
external liabilities in the system, but because it also addressed

balance-sheet weakness. Furthermore, moral hazard was
mitigated and corporate governance improved, as charters
were modiﬁed and board membership granted, and
supervisory committees strengthened. Although investors
initially threatened Kazakhstan with closed international
capital markets and a ‘pariah-state’ status, the restructuring
strategy received more than 90 percent creditor approval
for each of the three banks, and Kazakh issuers such as
Halyk Bank, Kazatomprom and KMG have received a warm
welcome from international investors.
The restructuring success is attributed to a series of
decisive steps taken by the government. While devising its
own restructuring strategy, the government was committed to
a fair and transparent restructuring process. Early on,
independent advisors were hired to provide unbiased
restructuring and asset-recovery advice that served to form
the restructuring strategy and framework, which was a
burden-sharing approach that rejected guarantees or bailouts.
To ensure that the execution process adhered to market
best practice, teams of ﬁnancial and legal advisors were
assembled. For process transparency, a ‘cram-down’ law
was passed that adhered to the United Nations Commission
of International Trade Law framework and has been
subsequently recognized, on a case-by-case basis, in the
United States and United Kingdom.
As part of the process, no bilateral agreements were
entered, and all creditors were treated equitably and fairly
within their asset classes. Essential to the process, and an
imposition from Kazakhstan, was the active participation of
the debt-holders through a steering committee process
representing all categories of creditors.
Engaging creditors as partners was an essential and
fundamental part of the successful restructuring process. Not
only did the steering committee process arrive at a consensual
agreement, but also it maintained the creditors as partners in
the banks’ futures through their exposure to debt and equity,
and board-member representation. By actively encouraging
investors to remain invested in the banks, corporate
INVEST IN KAZAKHSTAN 2011

127

128

BANKING AND FINANCE

Grigori Marchenko, Governor of the National Bank of Kazakhstan
I am happy to contribute to the
sixth edition of Invest in
Kazakhstan, and would like to
welcome new readers.
We are proud to say that
Kazakhstan has become the
ﬁnancial center of Central Asia,
with an efﬁcient and strengthened
banking sector. We have shown
other CIS countries how banking
reform can be achieved – without
relying too heavily on foreign banks.
Our country came out of the
2007 crisis in better form than so
many countries, with $37 billion of
foreign reserves in the central
bank and another $36 billion in the
National Oil Fund. Our considerable

oil exports (1.35 million barrels per
day) have allowed Kazakhstan to
become a net creditor to the world.
But we are, of course, looking
beyond oil to our other resources,
such as manufacturing, as well
as developing a more productive
labor force.
In the late 1990s, I spent time
heading the National Commission on
Securities and was CEO of Deutsche
Bank Securities. I returned as
governor of the central bank in 1999.
During the following ﬁve years, we
introduced Western accounting
standards and audits by the big
international accounting ﬁrms –
the ﬁrst CIS country to do so.

governance improved through charter enhancements, board
representation and committee supervision.
During the Kazakh restructuring, Alliance Bank and
BTA Bank working with the relevant members of the Steering
Committee of Creditors, created speciﬁc eligibility criteria for
the election of ‘true trade ﬁnance’ debt from the total trade
ﬁnance stock. Documentation underlying trade-related
transactions had to be proven in order to qualify as trade
ﬁnance debt. Where there were no speciﬁc underlying import
or export trade transactions, these were excluded from the
trade ﬁnance debt portfolio.
To ensure a transparent process, Alliance Bank and
BTA Bank appointed an Independent Adjudicator to adjudicate
trade ﬁnance claims. The result was that Alliance Bank, which
had an initial $293 million of claims, after the adjudication
process saw its trade claims conﬁrmed at $97 million to be
repaid over a 12-month period. In BTA Bank’s case, of the
nearly $3 billion of trade ﬁnance claims, $1.1 billion
private-sector trade claims were conﬁrmed. Of the adjudicated
amount, $700 million is to be repaid over a 36-month period,
without a haircut, and $400 million in private-sector trade
claims is restructured pari passu with other senior claims.
As mentioned earlier, Kazakhstan’s successful
restructuring is being analyzed as a possible framework for
INVEST IN KAZAKHSTAN 2011

Our stock market is small but
sound, and we are in the process
of developing it slowly and
steadily. The country is now
focusing on the need for
nurturing and growing mid-sized
companies. We are also deeply
involved with increasing the role
of developing nations and
emerging markets in international
organizations. We see ourselves
as a model in this sphere, and
continue to stress the importance
of reform in our leap forward as
an economy, and as a country.
As President Nazarbayev
announced, we intend to become
an international trade, logistics and

ﬁnancial hub by 2016, and we are
well on our way. As we become a
more active player in the global
economy, we are attracting more
foreign investors, and working as
a team player with our neighbors
and emerging markets.

other restructuring cases, which raises the question of
transferability of this restructuring model. To address this
question, one must consider the peculiarities of each country,
such as the size of the banking sector, contagion risks and
even the political construct. The latter was one of the main
strengths beneﬁting the process.
A key to the Kazakh restructuring success was its
unwavering commitment to a sensible restructuring
strategy and the commitment to a transparent restructuring
process that adhered to best market practices. The
restructuring strategy was a domestic-led effort, rather
than an international imposition, that relied on the strength
and vision of Prime Minister Karim Massimov, the support
from Samruk-Kazyna and the Financial Supervising Agency,
and the expertise and reputation of the National Bank
Governor Grigori Marchenko. n
Marcia Favale-Tarter has nearly two decades of emerging market
ﬁnance experience. Through her company, M Favale-Tarter, LLC,
she was an independent advisor to BTA Bank and Alliance Bank,
and currently advises Astana Finance, subsidiary of Samruk-Kazyna.
Ms Favale-Tarter is a senior advisor to the Prime Minister
of Kazakhstan, responsible for matters related to the ﬁnancial
sector and debt restructuring.

BANKING AND FINANCE

Foreign banks poised
for the upturn
Not restricted by national protectionism,
Kazakhstan’s banking sector looks to beneﬁt
from the ﬂurry of interest from the international
community. By Clare Nuttall
azakhstan’s banking sector is still mainly
under domestic ownership, but foreign
investment in the sector has been creeping
slowly upwards year by year.
International players including HSBC,
Citibank and Russia’s Alfa Bank have had a presence in
Kazakhstan for a decade. In recent years, banks from a
growing range of locations including Russia, China, Western
Europe, the Middle East and East Asia have entered the
market. Newcomers to the market include Russia’s VTB,
Sberbank and United Arab Emirates (UAE)-based Al Hilal.
Kazakhstan’s expanding trade and investment network is also
attracting investment banks from London, New York and the
European Union. However, until recently, the market share of
foreign banks has remained relatively small, unlike in the
Central and East European banking market where foreign
ownership is as high as 90 percent in some cases.
Foreign ownership in the Kazakh banking sector took a
leap forward in June 2007, when Italy’s Unicredit Bank agreed
to buy a majority stake in Kazakhstan’s ﬁfth largest bank, ATF
Bank. The deal valued the bank at $2.18 billion. A few
months after the Unicredit deal, South Korea’s Kookmin Bank
acquired a 30 percent stake in BankCenterCredit in a
$623 million deal agreed in March 2008. Kookmin, which
said it had made the investment to get a foothold in the CIS
market, later increased its stake to 42 percent in early 2010.
The International Finance Corporation, part of the World Bank
Group, took a 10 percent stake in the bank at the same time.

K

In the Central and East European
banking market, foreign ownership is
as high as 90 percent in some cases

INVEST IN KAZAKHSTAN 2011

129

130

BANKING AND FINANCE

New entrants are coming from different parts of the globe.
India’s Punjab National Bank plans to expand its operations
Both Unicredit and Kookmin have endured a rocky ride
in the Kazakh market, since they bought in immediately before
the crisis. The deal was a less-than-brilliant one for Unicredit.
Three years after making the investment into ATF, Unicredit
announced in August 2010 that it had written down the value
of ATF Bank by €162 million. This followed a write-down of
€417 million in the third quarter of 2009. Unicredit also
reported an unexpected 70 percent drop in net proﬁts in the
second quarter of 2010, partly due to the write-down.
However, both banks have steered their Kazakh
acquisitions through a difﬁcult three years, and are now
hoping to beneﬁt from their presence in one of the CIS’s
largest and fastest-growing economies.
Meanwhile, HSBC has been ramping up its presence in
Kazakhstan. HSBC Bank Kazakhstan agreed to buy Royal Bank
of Scotland’s retail business in the country. The British bank,
which was nationalized during the crisis, had been seeking to
divest assets in countries – including Kazakhstan, Russia
and Romania – to focus on its core business. The $52 million
deal delivered RBS Kazakhstan’s personal customer loan and
credit card portfolios, four branches and 80 automated teller
machines to HSBC.
“This acquisition reﬂects HSBC’s positive view of
Kazakhstan’s long-term prospects, not least because of its
trade ﬂows with China,” Simen Munter, HSBC’s CEO in
Kazakhstan said at the time of the acquisition. “We
have been in Kazakhstan for 12 years and today’s deal
signiﬁcantly increases our platform for growth by doubling
our network and growing our customer base ﬁvefold.”
State Secretary Kanat
Saudabayev and EIB
President Philippe Maystadt
sign a framework agreement
in Brussels

INVEST IN KAZAKHSTAN 2011

New entrants are also coming from different parts of the
globe. The adoption of legislation on Islamic banking and
ﬁnance in early 2009 opened the way for the UAE’s Al Hilal
Bank to enter the market. The bank obtained its license in
March 2010 and, depending on how successful it is, may be
followed by other banks from the Islamic world.
India’s largest state-owned bank, Punjab National Bank
(PNB) – which has had a representative ofﬁce in Kazakhstan
for over a decade – took over Dana Bank in December 2010
and now plans to expand its operations in the Kazakh market.
PNB paid around $23.7 million for the 63.64 percent holding
in Dana in December 2010. Dana is one of Kazakhstan’s
smaller banks, with a business worth around $60 million.
It currently has ﬁve branches.
“In our view, the Kazakhstan economy is growing and
improving day by day. The banking sector is out of the crisis
and is now more stable than previously,” says Bhushan Bhatia,
chief representative of PNB in Kazakhstan. “I believe there is
a great future for trade between India and Kazakhstan. Indian
businesses are very much interested in Central Asia, especially
Kazakhstan. Investors have found Kazakhstan to be stable,
growing and hospitable. Indian companies are ready to look at
all sectors – not just oil and gas, but also sectors including
agriculture and pharmaceuticals.”
The biggest question today is whether BTA Bank –
Kazakhstan’s largest bank by assets until its near collapse
and nationalization in 2009 – will be sold to a foreign investor.
A potential sale to Russia’s largest bank, Sberbank, has been
under discussion since February 2009, although even with the
restructuring of BTA’s debt completed, no deal has yet been
announced. It is understood that the Kazakh government’s
need to be seen to recoup the $6 billion it ploughed into BTA
to shore it up in the crisis may mean the price tag for the bank
is too high for Sberbank.
If the deal does go ahead, it will signal a signiﬁcant
change in a market where Western banks have, until recently,
been more warmly welcomed than Russian banks. Alfa and
Sberbank are both long-established in Kazakhstan, but on a
relatively small scale, even after Sberbank’s acquisition of Texaka
Bank in 2006. VTB, Russia’s second largest bank, entered the
market after ﬁnally receiving its license in May 2009. n

BANKING AND FINANCE

Support from the top for
Islamic finance market
In its quest to diversify, Kazakhstan has
embraced Islamic banking practices, with the
goals of establishing economic stability and
building links with neighbors. By Clare Nuttall
ver the past two years, Kazakhstan has rapidly
established itself at the vanguard of Islamic
ﬁnance in the Commonwealth of Independent
States (CIS) region. Since the adoption of new
legislation on Islamic banking and ﬁnance in
early 2009, one Islamic bank – Al Hilal Bank – has already set
up operations in Kazakhstan and two others are planned.
Several specialist investment houses and consultancies have
also been established. A roadmap for the development of
Islamic ﬁnance in Kazakhstan was drawn up in cooperation
with the Islamic Development Bank and approved in 2010.
The rapid rise of Islamic ﬁnance has occurred thanks
to pressure from the top. Kazakhstan’s President Nursultan
Nazarbayev is ﬁrmly behind the idea.
Not only did President Nazarbayev encourage the
speedy adoption of legislation and issuing of a license for
Al Hilal, but the links he has forged with leaders in the
Islamic world have also persuaded ﬁrms such as Al Hilal
to enter the nascent Kazakh market. Overall, the aim is to
turn Kazakhstan into a regional hub linking Central Asia
and the CIS to the Islamic world.

O

A receptionist at Al Hilal in Almaty.
The bank also has an Astana ofﬁce

INVEST IN KAZAKHSTAN 2011

131

132

BANKING AND FINANCE

Amendments to Kazakhstan’s legislation affecting the
Islamic banking ﬁnance sector will enable the Kazakh
government to issue its debut sukuk, or Islamic bond
Kazakhstan’s population has a Muslim majority, but the
country is largely secular, in part owing to its Soviet heritage.
However, Astana was encouraged by the success of London as
an Islamic ﬁnance center. The incentive to look at alternatives
to the Western ﬁnancial model also became stronger with the
onset of the international ﬁnancial crisis.
“The tone from the top is clear: Islamic ﬁnance should
be encouraged to grow and blossom. The president and the
Kazakh government are keen to establish Islamic ﬁnance in
this country,” says Prasad Abraham, the CEO of Al Hilal
Kazakhstan, which obtained its license in March 2010.
“There is a strong desire that Kazakhstan should become the
regional Islamic ﬁnance center by 2020.”
In early 2011, Al Hilal had extended facilities amounting
to $25 million in total, with 42 employees in its Almaty and
Astana ofﬁces. There are plans to open a third ofﬁce in the
populous south Kazakhstan region.

Bridge with UAE investors
The bank’s main focus is on large-scale, government-related
projects, says Abraham. “Several projects are under discussion,”
he says. “Separately, we have a mission to identify opportunities
for UAE investors in Kazakhstan. We will act as a bridge to bring
Kazakh projects to the attention of UAE investors.”
An agreement on the creation of a second Islamic
bank was signed in July 2010 by Almaty-based investment
house Fattah Finance, the Development Bank of Kazakhstan
and Malaysia’s AmanahRaya Financial Group. Fattah is
working on a feasibility study for the bank. At the same
time, Fattah signed an agreement to set up the ﬁrst hajj
fund in Kazakhstan, and a memorandum of understanding
on the creation of a halal hub in Kazakhstan, with
AmanahRaya and KazNex Invest.
Fattah’s chairman, Zaratkazy Nurpiissov, agrees that
the government has supported the creation of the market.
“Government support is available – it’s more than enough,”
he says. “After the international economic crisis, Kazakhstan,
like many other countries, started to search for alternative
ways to invest, to diversify, to develop the economy. We are
INVEST IN KAZAKHSTAN 2011

an Asian country, so we turned to Asia and to Islamic ﬁnance.
Once we were part of the Silk Road, and now a modern Silk
Road is being built. Also, it’s important to note that no Islamic
bank has ever gone bankrupt.”
While progress has been rapid, there are still important
steps that need to be taken. First, the legislative base needs
to be improved. Some amendments to Kazakhstan’s
legislation affecting the Islamic banking ﬁnance sector are
expected to be ﬁnalized in 2011.
These measures will not only pave the way for a wider
range of Islamic ﬁnancial services to be offered in the country,
but will also enable the Kazakh government to issue its debut
sukuk, or Islamic bond. The issuing of the bond will be highly
important for Kazakhstan to achieve its main goal in creating
Islamic ﬁnance – to attract ﬁnance from the Islamic world for
the country’s ambitious industrialization program and for the
diversiﬁcation of the economy.
“Within the next ﬁve to 10 years, we hope to attract up
to $10 billion – equivalent to 10 percent of all banking
assets in Kazakhstan,” Arken Arystanov, chairman of the
Regional Financial Centre of Almaty (now part of the National
Bank of the Republic of Kazakhstan) and one of the key
proponents of Kazakhstan’s Islamic ﬁnance market, told a
conference in March.
“We have high hopes that the government will issue a
sovereign sukuk soon. This will be a benchmark for corporate
issues and will demonstrate Kazakhstan’s long-term
commitment to developing Islamic ﬁnance instruments.”
“We hope a sovereign sukuk will be issued in the near
future, because it is important as a benchmark and will create
liquidity for the market,” agrees Fattah’s Nurpiissov.
In the future, a wider range of Islamic ﬁnancial services
is also likely. A third Islamic bank could be set up in 2011.
The government and ﬁnancial regulators are looking in
particular at takaful – Islamic insurance – which would be an
interesting prospect in a market where insurance is currently
underdeveloped. Kazakhstan will also have the chance to grow
the market this year, as it takes over the rotating presidency
of the Organisation of Islamic Cooperation in 2011. n

BUSINESS CENTERS

Thriving city in need of
further housing capacity

Almaty is the most Westernized of Kazakhstan’s
cities. As its reputation as a cultural and
ﬁnancial hub grows, its popularity goes from
strength to strength. But to accommodate the
inﬂux of inhabitants, it requires more living
space. By Clare Nuttall

azakhstan’s largest city and business
center, Almaty, is renewing its bid to become
a regional ﬁnancial center as neighboring
economies recover. The preferred location
for banks and ﬁnancial institutions, the city
still faces challenges in terms of accommodation
and environment.
With a population of around two million, Almaty is
the most populous city in Kazakhstan. Despite the removal
of government ofﬁces after the capital was moved to Astana

K
Almaty is the business and ﬁnancial
capital of Kazakhstan. Almost all
major companies outside the oil and
gas sector are based in the city, as
are the Central Bank and the
Kazakhstan Stock Exchange

INVEST IN KAZAKHSTAN 2011

133

134

BUSINESS CENTERS

Independence Square. The city was
built on a nomadic settlement site

a decade ago, Almaty remains the undoubted business
and ﬁnancial center of the country. It accounts for
one-ﬁfth of Kazakhstan’s total GDP and around 40 percent
of budget contributions. Almost all major companies
outside the oil and gas sector are based in Almaty, as
are the Central Bank and the Kazakhstan Stock
Exchange (KASE).
In 2006, the Kazakh government set up the
Regional Financial Centre of Almaty City (RFCA), an
organization tasked with turning Almaty into a ﬁnancial
hub, not just for Kazakhstan, but for the entire Central
Asian region. In April 2011, the RFCA was taken over by
Kazakhstan’s Central Bank.
The KASE is expected to get an additional boost when
the government’s program of “People’s IPOs” – domestic
listings of minority shares in large state-owned companies –
starts later this year.
Kazakhstan was one of the ﬁrst countries worldwide
to feel the impact of the international economic crisis,
and forecasts of the country being “ﬁrst in, ﬁrst out”
have proved largely correct. With oil prices back to
healthy levels, Kazakhstan’s attractiveness as an
investment destination has been restored. Now new
INVEST IN KAZAKHSTAN 2011

companies and ﬁnancial houses are looking to establish
themselves in Almaty.
The international banks that have remained in the
country during the crisis, among them HSBC and Russia’s
Sberbank, are stepping up their activities. They have been
joined in Almaty by several newcomers. Russia’s VTB
obtained its license in mid 2009; Punjab National Bank has
had a representative ofﬁce in Almaty for 10 years, but in
December 2010 took over the local Dana Bank and plans to
expand; and Kazakhstan’s ﬁrst Islamic bank, Al Hilal, has its
main ofﬁce in Almaty. In addition to local investment bank
Visor Capital, Russia’s Renaissance Capital and Troika Dialog
are also based in Almaty, and international investment banks
such as Credit Suisse and Citibank have ofﬁces in the city.
These businesses, and many of the larger local banks,
are concentrated in what has become the new business
district in the south of the city. The two key developments are
the Esentai Tower and Almaty Financial District, both
constructed by Capital Partners, and providing the ﬁrst true
‘Class A’ ofﬁce space in the city.
The city authorities are also working to attract new
manufacturing companies to Almaty, with the launch of
new industrial zones outside the city limits to minimize

BUSINESS CENTERS

Thanks to a large extension to an inﬂux of government
funding, most of the buildings started before the global
economic crisis are now ﬁnished or close to completion
pollution. The Alatau district now hosts a 340-hectare
industrial zone, with manufacturing, food processing and
pharmaceuticals plants.
Almaty’s residential property boom came to an abrupt
halt with the onset of the economic crisis in mid 2007.
Many buildings were abandoned, leaving a city skyline
punctuated with half-ﬁnished tower blocks and stationary
cranes. Other lots were simply boarded up and abandoned,
eventually becoming parks or parking lots. This situation
has changed, thanks to a large extension to an inﬂux of
government funding. Most of the buildings started before the
crisis are now ﬁnished or close to completion, and developers
are starting to think about the next generation of projects.
Despite the large number of high-end residential
buildings that mushroomed before the crisis, there is still a
pressing need for more living space in Almaty. Originally
founded as an outpost for the Russian empire, Almaty was
built on the site of a nomadic settlement. Now that it is
home to around two million people, the city’s room for
expansion is limited. It is hemmed in to the south and east
by the Tian-Shan mountains, which curb the potential for
construction near the city’s historic center.
To the north and west, new residential developments are
spreading out onto the steppe. Back in 2008, ambitious plans
were devised to build four satellite cities to the north, between
Almaty and Lake Kapchagai, around 100 kilometers away. The
plans were put on hold during the economic crisis, but the G4
City project may now be revived.
Meanwhile, within the city, quality of life continues to
improve. Almaty’s temperate climate, proximity to ski resorts
and cosmopolitan downtown area with a growing number of
international retailers, coffee shops and restaurants has made it
the preferred location for expats in Kazakhstan. After a gloomy
start to 2009, the past 18 months have seen the opening of
numerous shopping malls, supermarkets, cafes and bars.
In addition to the long-established Hyatt and
Intercontinental Hotels, three other big brands – Holiday Inn,
Rixos and Royal Tulip – launched in the past two years, as

The Tian-Shan mountains curb
development to the south and east

Almaty prepared for an inﬂux of visitors attending the Asian
Winter Games in February 2011. An increasing number of
airlines serve Almaty, and local carrier Air Astana has been
expanding its routes to provide direct ﬂights to Europe, the
Middle East and Asia.
Almaty co-hosted the Asian Winter Games in February
2011 along with Astana. The games were a triumph for
Kazakhstan, which took the lion’s share of the medals. They
were also the driving force behind the construction and
renovation of numerous stadia, and of other facilities in both
cities. The improvements included the renovation of the Medeo
skating rink and Shymbulak ski resort, which will have
long-term beneﬁts for the population of Almaty, especially as
the construction of a cable car means that Shymbulak is now
accessible by public transport for the ﬁrst time.
Within Almaty, the city authorities are focusing on
improving public transport services. There are more than
150,000 private cars in the city, leading to severe rush-hour
trafﬁc jams and adding to the smog that is a growing problem.
In an attempt to reduce the number of cars on the roads,
further bus and trolleybus routes are being launched, while the
long-awaited Almaty metro train service is scheduled to open
in December 2011. n
INVEST IN KAZAKHSTAN 2011

135

138

BUSINESS CENTERS

Capital on the steppe
Astana’s status as Kazakhstan’s capital is
assured, with the city experiencing 50-fold
GDP growth in the past 10 years. A steady
ﬂow of businesses have relocated there,
reﬂecting conﬁdence in the local economy.
By Clare Nuttall

stana, which has been Kazakhstan’s capital for
the past 13 years, is sometimes dubbed ‘Dubai
on the steppe’. The city’s importance is growing
as more businesses relocate there to be closer
to the government.
Astana’s growth also reﬂects Kazakhstan’s rising
international status. In February 2011, it co-hosted the Asian
Winter Games, which required the construction of new stadia
and other facilities. Construction of new government ofﬁces,
and of the infrastructure needed to sustain a growing city of
around 700,000 people, is ongoing.
Kazakhstan’s good international relations, and the
government’s aspiration to play a greater role on the world
stage, have seen the country take the presidency of a number
of international organizations recently. In 2010, the country
held the rotating presidency of the Organization for Security
and Cooperation in Europe, which culminated in a summit
meeting in Astana in December. In 2011, Kazakhstan is
chairing both the Organisation for Islamic Cooperation and the
Shanghai Cooperation Organization. The Shanghai Cooperation
Organisation summit, the European Bank for Reconstruction
and Development annual meeting and the World International
Economic Forum all took place in Astana this year.
Astana’s appearance has changed dramatically in the past
decade – more so than that of any other city in Kazakhstan.
When the decision was made to relocate the capital from
Almaty, ostensibly because of the former capital’s location in an
earthquake zone, Astana (then named Akmola), was a minor
city in the northern steppe. The Soviet town of Tselinograd –
the center of Nikita Khrushchev's ill-fated ‘Virgin Lands’
campaign in 1953 – was renamed Akmola after independence.

A

INVEST IN KAZAKHSTAN 2011

But because of the name’s alternate meaning of ‘white tomb’,
the city was understandably renamed again when it was
made the capital. ‘Astana’ simply means ‘capital’ in Kazakh.
Government ofﬁces have been gradually relocated to
Astana over the years, and have been followed by an increasing
number of domestic and international companies that
appreciate being close to the seat of power. Ambitious young
Kazakhs are also being drawn to the city in greater numbers.
The growing population, and the inﬂux of businesses and
government ofﬁces, has caused a spectacular building boom
in Astana. Around 40 percent of all construction work in
Kazakhstan is taking place in Astana. While some new
constructions have grown up on the city’s historic right bank,
which is composed mainly of Imperial Russian and Soviet
housing, the left bank, which has largely been built from
scratch and is the location of most government ofﬁces, has
seen the construction of numerous wildly exotic buildings.
In 2010, on the city’s 12th anniversary as capital, the
Khan Shatyr pleasure dome opened. This giant, tent-like
structure, designed by Sir Norman Foster, houses shopping
and entertainment centers. There is also an indoor lake where
Astana residents can bask in winter when temperatures drop
below minus 40ºC outside; Astana competes with Toronto and
Ulan Bataar for the title of the world’s coldest capital.
“In Astana, it’s too cold to walk outside. Now, when it’s
minus 40ºC, people can swim in indoor pools, enjoy the
aquapark and stroll among trees and plants,” says Cholponbek
Akdekov, an Astana-based representative of Turkish construction
company Sembol, which built the Khan Shatyr. “Owing to the
high winds, we had to change the design to make it more
aerodynamic. Now we plan to build eight towers full of serviced
apartments, linked to the Khan Shatyr by indoor tunnels.”
Other new structures include the triangular Palace of
Peace, buildings dubbed ‘the lighter’ and ‘the wedding cake’,
and the Baiterek Tower – a tall, white structure, cradling a
golden egg, that has become the symbol of the city. The city’s
status has also been enhanced with the opening of Nazarbayev
University in summer 2010. The aim is to attract talented
academics to create a world-class university in the capital.

BUSINESS CENTERS

A new skyscraper on the
left bank, where most
government ofﬁces are based

The growing population, and
the inﬂux of businesses and
government ofﬁces, has
caused a building boom, with
the construction of numerous
wildly exotic buildings
INVEST IN KAZAKHSTAN 2011

139

140

BUSINESS CENTERS

New housing in Astana, where
young people are ﬂocking to work

The city’s exotic structures include the triangular Palace
of Peace and the Baiterek Tower, cradling its golden egg

Co-hosting the Asian Winter Games
this year meant building new stadia

The government and city authorities are also working
to turn Astana into an industrial hub, as well as an
administrative city. Astana’s importance in the Kazakh
economy has grown signiﬁcantly in the last decade. The city’s
GDP increased more than 50-fold in 10 years – fast even by
Kazakh standards. As of 2010, Astana accounted for
10 percent of Kazakhstan's total GDP, compared with just
1.5 percent in 2000. Industrial output is up sevenfold since
2000 and investment is 22 times greater.
To attract new businesses to Astana, the city authorities
have launched a 6,000-hectare special economic zone –
Astana New City. Incentives have been successfully offered to
manufacturing and service companies to set up in the zone,
with the result that an extension is now planned to keep
pace with demand. In addition to domestic companies, the
zone has attracted investors from China, Korea, Turkey and
the US. “Astana New City is composed of two zones –
a construction zone, and an industrial and high-tech zone,”
says Meder Masselov, managing director of the department for
the administration of Astana New City within the Astana city
INVEST IN KAZAKHSTAN 2011

akimat (city hall). “We have a wide range of incentives,
including exemption from customs duties, VAT, land tax and
several other taxes. The project has proved so popular that
we now need to build a second industrial park because the
ﬁrst one is full.”
One company to set up in Astana was General Electric
(GE) Transportation, which has built a locomotive assembly
plant in cooperation with Kazakhstan's national rail company,
Kazakhstan Temir Zholy (KTZ). The plant opened in July 2009
and will produce up to 100 locomotives a year to supply KTZ,
and serve other CIS railway operators. As KTZ’s expansion plans
gather momentum, a second plant – this time in cooperation
with France’s Alstom – is due to be set up in Astana.
Meanwhile, a national space center is being built in
Astana by Kazakhstan Gharysh Sapary, part of Kazakhstan’s
space agency. Construction of the center, which will focus on an
assembly, integration and testing complex, started in July 2010.
It will cost around $185 million to construct, and will allow
Kazakhstan to build up its domestic space industry while the
Baiterek Cosmodrome remains under lease to Russia. n

142

INDUSTRY AND SERVICES

Strong growth
despite setbacks

Loading up with wheat grain near
Birlik village. The country produces
high-quality durum wheat

INVEST IN KAZAKHSTAN 2011

INDUSTRY AND SERVICES

Prone to some of the most extreme temperatures
and weather, Kazakhstan has taken measures
to boost its productivity in arable farming and
livestock. By Clare Nuttall and Nora FitzGerald

t is not uncommon these days for 200 or so of North
Dakota’s best breeding cattle to be loaded on a Boeing
747 aircraft bound for Kazakhstan. More than 2,000
cattle have been airlifted so far from Fargo to Astana.
Several thousand more cattle, the ﬁnest of breeders, are
also expected to make the trip.
The North Dakota Trade Ofﬁce (NDTO) now has a satellite
ofﬁce in Astana. According to NDTO executive director Dean
Gorder, the ofﬁce is acting as a kind of matchmaker between
American companies in North Dakota and Kazakh agricultural
ofﬁcials eager to quicken the pace of modernization for farming,
food processing and, ultimately, food export. American
companies are offering new cattle, equipment and expertise.
“Kazakhstan needs to rebuild its herd,” Gorder said.
“It tried to buy cattle from Australia and Texas, but they didn’t
thrive. In the state of North Dakota, at any given time, we have
a million breeding cattle. They live outdoors during long cold
winters and hot summers.”
Bismarck, North Dakota-based Global Beef Consultants,
through its joint venture partnership with the government of
Kazakhstan, is supplying Kazakhstan with Angus and Hereford
cattle. KazBeef Ltd, the joint venture corporation, involves a
$50 million project to develop two 2,500-head cow-calf
operations and a 5,000-head feedlot near Akmola Oblast,
Kazakhstan, says Bill Price, president of Global Beef
Consultants. The project marks the most ambitious and
largest scale upgrade of Kazakhstan’s cattle herds – depleted
in the years after the collapse of the Soviet Union – to date.

I

Kazakhstan has seen strong growth in agricultural
production, as modern farming methods have been introduced
in the last decade. Even after last year’s drought, which was a
setback for grain production, Kazakhstan is well-positioned to
take advantage of rising global food prices.
The drought that devastated Russian farms in 2010
also had an impact on the grain-producing regions of north and
west Kazakhstan. In parts of the country, up to 70 percent of
the crop was destroyed, as temperatures soared above
50ºC for several weeks. According to the national statistics
agency, Kazakhstan harvested just 13.4 million tons of grain
in 2010 – considerably below the record 20.8 million tons
of grain harvested in 2009, which had beaten the previous
record of 20.1 million tons in 2007.
Detrimental weather conditions have affected crops
not only in Russia and Kazakhstan, but also in other world
regions, helping to drive a hike in food prices. Globally, “in
2010-11 we are seeing a return of the punishingly high
food prices seen in 2008”, says a report from IHS Global
Insight’s Agricultural Service. However, this upward pressure
on prices is not expected to continue through the year.
“Easing production and supply constraints should see most
key prices moderate in 2011, but there are many
unpredictable factors such as extreme weather that may
intervene,” says the report.

Agricultural fairs
In Kazakhstan, measures are being taken to ensure that
food prices remain at reasonable levels. The Almaty city
authorities, for example, have organized regular agricultural
fairs in the city, where farmers from south Kazakhstan sell
their fruit, vegetables and meat directly to consumers.
Subsidies for these products bring prices down by between
20 and 30 percent.

Kazakhstan harvest (in tons of grain)

2007

2009

2010

20.1 million

20.8 million

13.4 million
INVEST IN KAZAKHSTAN 2011

143

144

INDUSTRY AND SERVICES

A shepherd near Ashibulak village.
Rural development is a priority

With Russian grain exports embargoed until
September 2011 at the earliest, Kazakhstan is also facing
increasing international demand, especially for grain. The
main markets for Kazakh grain are the Central Asian
republics: Kyrgyzstan, Tajikistan and Uzbekistan. In the
aftermath of Kyrgyzstan’s April 2010 revolution, which
disrupted last year’s sowing season, Kazakhstan has pledged
to keep supplying its neighbor.

Eyeing new markets
However, Kazakhstan is also looking at a wider range of
markets for its grain exports. In recent years, the share of
exports to the Commonwealth of Independent States (CIS)
has fallen, and sales to Middle East and South and East Asia
have increased. The highest leap in demand has been from
Afghanistan, Iran and Turkey.
This year’s harvest is expected to be higher than that
of 2010. A total of 21.3 million hectares (ha) has been
sown this year, agriculture minister Akhylbek Kurishbaev
told a government session on March 11. This total includes
16.5 million ha of grain and legumes, 1.7 million ha of
oilseeds, 2,500ha of fruit and vegetables and 1,700ha
of sugar beet.
Kazakhstan’s agricultural sector has developed strongly
in the past decade. Even the poor harvest of 2010 was
considerably higher than in the late 1990s, when yields
plummeted owing to the collapse of the Soviet-era kolkhoz
system and a lack of investment.
With the exception of cultivated areas in the south, the
country’s rural population was largely nomadic until the Soviet
collectivization drive in the 1920s and 1930s when the rural
population was forcibly settled into collective farms. Two
INVEST IN KAZAKHSTAN 2011

decades later, Nikita Krushchev’s ‘Virgin Lands’ campaign in
north Kazakhstan failed miserably in 1953 when the soil’s
fertility was quickly exhausted.
However, with modern farming technologies, the
government is keen to put some of the country’s unused lands
to use. An additional two million ha of land were put into use
for grain cultivation between 2006 and 2008. President
Nursultan Nazarbayev has instructed the Ministry of
Agriculture and the Agency for Land Management to draw up
plans for putting more of the 24 million ha of arable land in
the country into circulation.
Kazakhstan is already the third largest producer of grain
in the CIS after Russia and Ukraine, and has specialized in
producing wheat, which accounts for around 82 percent of
total grain cultivation. The country produces high-quality
durum wheat suitable for products such as pasta.
However, much of Kazakhstan, including the
mountains, deserts and semi-desert areas, are unsuitable
for farming. Unpredictable weather is also a problem, with
droughts striking two years out of ﬁve. The Siberian climate
in the north means winters are harsh and the growing
season short.
The international economic crisis also took a toll on
agriculture. But, as part of the anti-crisis program in late
2008, the government announced a $1 billion allocation for
state agricultural holding company KazAgroHolding. This
money was directed into new projects including construction
of greenhouses and poultry farms, feedlots, meat-packing
factories, milk farms and infrastructure for grain exports.
Rural development is a priority for the government, which
has allocated KZT670 billion ($4.6 billion) to rural programs
over the past ﬁve years. n

INDUSTRY AND SERVICES

A worker in the Temirtau steel plant. Industrial safety
standards are being upgraded, but there are still plenty
of opportunities for health-and-safety service providers

Fertile ground
for ventures
to support a
growing economy
While some of Kazakhstan’s sectors do not
quite match international standards, there are
plenty of opportunities for savvy non-domestic
companies to take the initiative and make their
mark in this nascent economic landscape.
By Tim Gosling

he rapid pace with which Kazakhstan’s economy
has been growing over the past decade has left
the services sector somewhat underdeveloped in
comparison with demand. While international
accounting and legal companies arrived some
time ago to serve the country’s huge energy and mining
operations, foreign banks have been slower to provide a

T

full complement to the local ﬁnancial institutions that
dominate the sector.
Although great strides have been made since
independence to build institutions, a legal framework for
starting and running businesses, and the infrastructure
needed to support them, Kazakhstan is continuing to develop
systems of business law, taxation, banking and external links
to the international business community. This means that
professional service providers in these areas are even more in
demand for companies operating in Kazakhstan.
Meanwhile, information technology (IT), consultancy
and human resources (HR) services offer signiﬁcant
opportunities to investors, with both the Kazakh authorities
and companies on the ground looking for foreign proposals
and partnerships that can improve these segments.
INVEST IN KAZAKHSTAN 2011

145

146

INDUSTRY AND SERVICES

The IT sector is taking advantage of strong demand for its
services from government, businesses and foreign investors
Accounting
All the ‘Big Four’ accounting companies (Deloitte,
PricewaterhouseCoopers, Ernst & Young and KPMG) are
present in the Kazakh market. Kazakhstan was among the
ﬁrst of the countries in the Commonwealth of Independent
States (CIS) to promulgate accounting and auditing
standards. As a result, services are more advanced than in
most other CIS countries. But much remains to be done if
Kazakhstan wishes to raise the quality of accounting and
auditing practices to a level that is in line with more
developed economies.
According to the World Bank, HR and training remain
one of the big issues in accounting in Kazakhstan. The
institution says that the business community is reporting
difﬁculties in recruiting accounting and ﬁnance graduates of
suitable quality, and that there remains a chronic shortage
of qualiﬁed instructors. However, given the transition toward
international standards required by international ﬁnancing,
the opportunities for established and recognized services
providers are enormous.

Banking
Kazakhstan’s banking sector is still mainly under domestic
ownership, but foreign investment in the sector is
creeping slowly upwards.
International players such as HSBC and Citibank have
been in Kazakhstan for a decade. In recent years, peers from
fellow emerging markets have entered, including those from
Russia, China, the Middle East and East Asia. Kazakhstan’s
expanding trade and investment network is also attracting
banks from London, New York and the European Union.
Entries into the sector during the last ﬁve years
include Italy’s UniCredit Group, United Arab Emiratesbased Al Hilal and South Korea’s Kookmin Bank – all
illustrations that investors from both east and west are
seeking to take advantage of the potential in the market.
The latest to take the plunge is Punjab National Bank.
India’s largest state-owned bank was bought by Dana Bank in
December, and has announced plans to grow its operations
in the Kazakh market.
INVEST IN KAZAKHSTAN 2011

Not surprisingly, Russia’s ﬁnancial giants are also active
on the market, with Sberbank, VTB Group and Alfa Bank all
present. Perhaps the biggest question today is whether BTA
Bank – Kazakhstan’s largest bank by assets – will be sold to a
foreign investor. A potential sale to Sberbank has been under
discussion since February 2009.

IT and business services
Kazakhstan has strong potential for provision of IT outsourcing,
with reports saying that the government has made a
commitment to enhance this area. With the low cost of labor,
in comparison with key regional competitors such as Russia,
and existing high skill levels, the IT sector is taking advantage
of strong demand for its services from government, local
businesses and foreign investors already based in Kazakhstan.
High levels of broadband penetration and mobile phone
connection compared with its neighbors also make Kazakhstan
a potential platform for IT businesses in Central Asia.

Legal and tax services
Kazakhstan’s dynamic development means that the country
still experiences regular changes in legislation and tax
regulation. The market for legal and tax services is competitive
in Kazakhstan, with companies such as Chadbourne & Parke,
Grata, Salans, and White & Case all present, having arrived to
focus on the Kazakh legal framework for mining. However, the
rapid expansion and diversiﬁcation of the economy is seeing
overall demand for services rise accordingly, while the range of
expertise needed is also growing.

Health and safety
As international ﬁnancing requirements increasingly inﬂuence
Kazakhstan’s companies, opportunities abound for service
providers in markets such as health and safety. Current safety
standards fall short on certain levels compared with recognized
international standards, most notably in the coal-mining
sector. However, that is changing, with Kazakhstan’s safety
standards increasingly being addressed by services and
consultancy companies, often via cooperation agreements
between international and local partners. n

INDUSTRY AND SERVICES

From triage
to treatment:
improving
healthcare

Kazakhstan’s focus on healthcare is already
having an impact on its citizens for the better,
from lessening the ravages of disease to
improving the atmosphere for birthing mothers.
By Nora FitzGerald

dil, an adorable toddler, was less than a year
old when he was diagnosed with tuberculosis
(TB). When he was brought to an Almaty
clinic in 2005, he weighed less than 6kg,
and his parents feared the worst.
However, an effective treatment strategy and high-quality
services helped him recover. More than 18,000 Kazakhs such
as Adil have recovered from TB. The Kazakh government has
been ﬁghting the resurgence of this intractable disease with
directly observed, short-course treatments. The government
has also committed to providing free medication, and has been

A
Maternity ward in Aktau’s
main hospital. Improving
maternity services is a
priority for the country

INVEST IN KAZAKHSTAN 2011

147

148

INDUSTRY AND SERVICES

Doctors test an
astronaut before a
space mission
from Baikonur

A specialist in
Almaty examines
a medical
test sample

working with non-governmental organizations and Western
governments to train Kazakh doctors and specialists in the area
of infectious diseases.
But according to President Nursultan Nazarbayev, “Our
system of medical education has many problems. It must be
reformed.” The ﬁrst years of independence were a time when
the Kazakh health system and its infrastructure fell apart,
but in recent years the government has been rebuilding a
healthcare system to help its people thrive.
As part of that effort, the government wants to make the
capital, Astana, a center of medical training and research.
Government ofﬁcials have said the development of technical
and management expertise is as important to the improvement
of health outcomes as investments in infrastructure.
Astana Medical University – which is at the forefront of
that effort – has formed academic partnerships in public health
and clinical medicine with Columbia University in New York,
Hiroshima and Nagoya Universities in Japan, and the Vienna
Medical University in Austria. The recently opened Nazarbayev
University in Astana, which was formed on the initiative of
President Nazarbayev, has formed an alliance with Partners
Harvard Medical International to build a medical school.
In conjunction with the World Bank, the government is
building an independent accreditation system with formal
standards, trained staff and trained assessors, and
INVEST IN KAZAKHSTAN 2011

evidence-based clinical practice guidelines. It is also
introducing and promoting a system of voluntary blood
donorship, and supporting the introduction of international
standards for laboratory and blood transfusion systems.

Mothers and children ﬁrst
Kazakhstan has embarked on the creation of a single
healthcare system that will see major investment by the
government in new hospitals and clinics, and the promotion of
better healthcare for women and children in particular.
“I always dreamed of giving birth with my husband
present, and here I was allowed to,” said Olessya Mikhereva,
who recently gave birth at the Astana City Maternity Hospital
Number One in Kazakhstan’s capital city. “The medical
personnel helped us through it all.”
Many Kazakh mothers now have the support of family
members in the delivery room – up to 20 percent in Astana.
Improved health and family support for mothers and infants is
a priority for Kazakhstan.

Bolstering medical research
To achieve its goals, the government has committed to spend
at least four percent of GDP on public health expenditure and
will spend more than $3 billion on improvements to the system
by 2015. Major outlays will include the creation of a uniﬁed

150

INDUSTRY AND SERVICES

An integrated health information system is being
implemented and tested in a few regions and cities
before being expanded across the country
Pharmaceutical Industrial Development Program for 2010-14,
healthcare information system, the construction of new
which provides incentives – including loans – for local
medical facilities across the country, the fostering of a
producers to increase production, and to attract foreign
domestic pharmaceutical industry, and the bolstering of
investment into the sector.
medical education and research.
The government is also seeking to bring its
The effort to create an effective single healthcare system
pharmaceutical regulations into line with Russia and
stems from the desire to reverse the decentralization and fall
Belarus as part of the Customs Union created by the three
in standards over the last two decades. After the collapse of
countries last year.
the Soviet Union, the existing infrastructure fell apart and was
The medical equipment market is also dominated by
accompanied by a rise in corruption.
foreign producers, and is growing rapidly as government
The government’s ultimate goal is to dramatically lower
investment creates demand for diagnostic
high rates of TB, cancer and other diseases, many
equipment, medical lasers and dental
of which are associated with poverty and
equipment, in particular.
lifestyle choices, including alcohol
There are almost 60,000 doctors
consumption and smoking.
and more than 125,000 other
There are more than 1,000
medical personnel in Kazakhstan,
full-service hospitals in Kazakhstan
and the government wants to foster
and almost 4,000 short-stay
continuing education. Through
clinics, most of them state-owned.
exchanges and cooperation with
The government is intent on
medical colleges in other countries,
increasing both the quality and
the government will promote the
quantity of the network.
Local pharmaceutical
adoption of internationally
A key element is the
production
recognized standards and practices
introduction of a health information
across Kazakhstan.
system that will improve the quality
The government’s endeavors into
and efﬁciency of the health sector and
health infrastructure have achieved some
of healthcare facility management. The
early successes, such as the creation of a large
integrated system is being introduced
medical complex with several centers in Astana.
gradually – implemented and tested in a few
More than 500 Kazakh personnel, including specialists, have
regions and cities before being expanded across the country.
already been trained in Astana.
President Nazarbayev’s administration is also focusing its
A domestic pharmaceutical industry
concern on the state of neurology, and more speciﬁcally, the
Foreign producers continue to dominate in both
treatment of epilepsy in Kazakhstan. The country lacks
pharmaceutical and medical products, with representatives
specialized neurologists in this area. Until the recent opening
from dozens of countries working in Kazakhstan. The
of the faculty of post-graduate education, the country’s doctors
pharmaceutical market, which was valued at $1 billion in
had no access to modern approaches or international
2009, continues to grow at rates of 15 to 20 percent annually.
associations. The country hopes to train more doctors to be
Local pharmaceutical production now accounts for 12 percent
able to treat epilepsy and related neurological diseases. n
of all drugs. Last year, the government adopted its

12%

INVEST IN KAZAKHSTAN 2011

152

INDUSTRY AND SERVICES

Mass-market stores and
malls gain ground

The bazaar in Almaty. The sector has
until recently been polarized
between traditional open-air
shopping and designer boutiques

INVEST IN KAZAKHSTAN 2011

INDUSTRY AND SERVICES

The transition from bazaar to
shopping malls in Kazakhstan has
been slow to begin with, but
younger shoppers are likely to
embrace Western-style retail as
more mass-market brands venture
eastwards. By Clare Nuttall

nternational retail chains have been
slow to enter Kazakhstan, but 2010
saw a large inﬂux of new brands to
the market. And as consumer
conﬁdence returns and disposable
incomes resume their upward trend, more
companies are expected to enter the
rapidly growing retail sector.
In recent years, stores and shopping
malls targeting Kazakhstan’s growing
middle class have mushroomed. Despite
the crisis, mass-market retail has ﬁnally
started to take off, ﬁlling the yawning gap
between traditional open-air bazaars and
top-end designer boutiques.
As Kazakhstan emerges from the crisis,
the past two years have seen the opening of
the country’s ﬁrst hypermarket – Ramstore’s
ﬂagship store at the A’port mall in Almaty – as
well as the entry of high street brands such as
Zara and Monsoon to the Kazakh market.
Average salaries in Almaty are now
around $800 a month. But despite almost a
decade of growing purchasing power, the
international mass-market brands have been
reluctant to come to Kazakhstan, with a
handful of exceptions. During the boom
years of the mid 2000s, the moneyed elite
would ﬂy to London or Dubai on shopping
sprees, while the rest of the population
had little choice but to continue shopping
at the bazaars.
Logistics were one deterrent;
Kazakhstan has a population of just
16 million spread over an area the size
of Western Europe. Initiatives such as the
Western Europe-Western China highway and
the planned modernization of Kazakhstan’s

I

railway network will make things easier, but
this will take time.
The lack of suitable retail space has also
held back the sector, but this too is changing.
The new wave of brands have partly been lured
to Kazakhstan by the opening of modern malls.
A’port, which opened in September
2009, is already the largest mall in Central
Asia. An extension, due to open in autumn
2011, will increase its size to 80,000 square
meters. Eurasia Red, which developed the
mall, is planning to open another mall in
Almaty and one in Astana within the next ﬁve
years. Another property developer, Mega, has
malls in the country’s largest cities including
Almaty, Astana, Shymkent and Aktobe.
Meanwhile, at the upper end of the
market, the Esentai Park mall, part of a
mixed-use development in Almaty’s ﬁnancial
district, is due to open later this year.
Matthew Bond, managing director at
Esentai’s developer Capital Partners, says the
ﬂoor plan has been amended in response to
demand, to allow more room for retailers,
including mass-market brands.
Almaty remains the retail hub of
Kazakhstan, accounting for around 60 percent
of total turnover, but numerous malls have
also opened in Astana. Among them is a mall
housed in the Khan Shatyr – a giant,
temperature-controlled tent containing shops,
restaurants and other leisure facilities.
“Kazakhstan is an undiscovered, yet
very lucrative, market for international
retailers,” says Dmitry Revin, Eurasia Red’s
director for ﬁnance and business
development. “Kazakhstan’s entry into the
customs union alongside Russia and Belarus
has caused a number of retailers – both
Russian companies and international
companies present in Russia – to look
again at Kazakhstan.”
But retailers are also entering
Kazakhstan from another direction.
“Franchises of international brands that are
active in the GCC [Gulf Cooperation Council]
ﬁnd these markets are now mature and
INVEST IN KAZAKHSTAN 2011

153

154

INDUSTRY AND SERVICES

The Promenade mall in Almaty

Leisure activities at Astana’s Khan
Shatyr complex, which also
contains shops and restaurants

People have gone from shopping in kiosks in the late
1990s to shopping at hypermarkets today. While some of
the older generation still prefer to shop at bazaars, the
younger generation has embraced modern retail
oversaturated. They are looking to Kazakhstan and Azerbaijan
to get a foothold in the CIS (Commonwealth of Independent
States) and capitalize on market expansion.”
Among the food retailers in Kazakhstan, Ramstore – which
is owned by Turkey’s Migros Group – has established itself in the
number-one position, despite competition from local retailers
such as SM Market and Green, and Russia’s Vester.
As with fashion retail, the food market is also
modernizing rapidly. Germany’s Metro Group set up its ﬁrst
cash-and-carry outlet in Astana in late 2009, and opened
four more stores in just 16 months. “Kazakhstan looks good
to us. It’s premature to be ecstatic, but the macro indicators
are positive,” says Stephen Kreeger, managing director of
Metro Kazakhstan. Metro plans to open three new stores in
northern Kazakhstan this year.
The entry of wholesalers such as Metro to the Kazakh
market are hastening the transition from the bazaar system
INVEST IN KAZAKHSTAN 2011

– which blossomed after the breakup of the Soviet Union – to
a modern retail sector.
Revin estimates that around 55 percent of retail turnover
now goes through formal channels – though it is difﬁcult to
estimate since much of the bazaar trade is cash in hand – and
he expects the transition to be fairly quick.
“The move from bazaars to formal retail is not a slow
process,” he says. “People have gone from shopping in kiosks
in the late 1990s to shopping at hypermarkets today. While
some of the older generation still prefer to shop at bazaars,
the younger generation has embraced modern retail. The
proportion of goods sold through the bazaars is falling. I think
the shift will be completed in the next eight to 10 years.”
“I think in future there will be a move away from
markets,” agrees Kreeger. “The elimination or reduction in
markets could come about simply owing to market forces or
from an effort to upgrade sanitary and hygiene standards.” n

azakhstan has a booming
telecommunications market, on
the back of a growing economy
and a program of positive
regulatory reform in the
telecommunications sector. Legislation
adopted in 2004 laid the foundation for the
liberalization and development of the

K

telecoms sector, and put an end to the
monopoly enjoyed by Kazakhtelecom, the
state-controlled telecoms operator.
However, relatively limited
competition in the ďŹ xed-line segment has
seen development lag somewhat, whereas
the early opening of the mobile (cellphone)
and broadband segments to private investors
had, by contrast, provoked rapid
infrastructure development.
Overall, international operators and
manufacturers are well represented in
provision of services and installation of
state-of-the-art equipment. Companies such
INVEST IN KAZAKHSTAN 2011

155

156

INDUSTRY AND SERVICES

Baikonur Space Center – the world’s telecommunications launch pad
Located in central Kazakhstan,
Baikonur is the largest operational
space launch facility in the world.
Leased to Russia until 2050, it is
managed jointly by the Russian
Federal Space Agency and the
Russian Space Forces. Under the
current Russian space program,
Baikonur remains a busy space
port, with numerous commercial,
military and scientiﬁc missions
being launched annually.

Baikonur launched several
foreign-owned satellites in
2010, including the Ka-Sat –
a new-generation satellite built
by EADS Astrium. The ﬁrst of its
kind, Ka-Sat can transfer up to
70 gigabytes of data per second,
and will provide wireless
broadband internet coverage
across Europe.
As for Kazakhstan itself, the
country is set to launch its second
telecommunications
satellite - KazSat-2 – from
Baikonur in summer 2011.
It will replace KazSat-1,
which was lost owing to
technical failure.
KazSat-2 will be a
serious upgrade from its
predecessor, and feature
the latest technology from
Western Europe in place of

as Motorola, Lucent, Siemens, Alcatel, Nokia, Daewoo and
Nortel Networks have all been active in the market.
By 2005, four private operators had been licensed
to provide international and long-distance services in
competition with the incumbent, Kazakhtelecom. They
were state-railway subsidiary TransTelecom, KazTransCom
(a subsidiary of the national oil company), Ducat and Astel.
Up to 1,500 new telecoms service providers of various kinds
had been licensed by the end of 2005.
The key drivers in the ﬁxed-line and internet sectors
include the deployment of Kazakhtelecom’s fully digital
national telecom network, based on local and long-distance
switches, and the presence of ﬁber-optic lines linking all
major cities in the country.
Kazakhstan has relatively strong ﬁxed-line penetration
– 24 telephone lines per 100 inhabitants by the end of
2009 – with six operators providing ﬁxed-line telephone
services to about 3.8 million subscribers. Analysts expect
INVEST IN KAZAKHSTAN 2011

Baikonur is used for commercial,
military and scientiﬁc space missions

the Russian equipment used
previously. The new satellite
features 12 Ku-band transponders
for ﬁxed communications and four
Ku-band transponders for TV
transmissions, and is intended
for telecast, ﬁxed satellite
communication and data

transmission for Kazakhstan
and Central Asia.
Meanwhile, KazCosmos is
already working on putting a
third-generation telecoms
satellite into orbit, with a tender
under way to choose a company
to build and launch KazSat-3.

sustainable, above-inﬂation growth in local voice tariffs
over the next few years.
However, as in many post-Soviet states, the country has
had a history of long waiting lists for ﬁxed-line telephone
services over the years, and this has helped to boost rapid
development of the cell-phone market. Meanwhile, market
players are now also accelerating development of broadband.
The early opening of the telecoms sector, and especially
the healthy competition in the mobile segment, has made it the
biggest draw for foreign investment. The sector saw by far the
largest total private investment of any infrastructure sector
between 1990 and 2009, according to the World Bank. Of
a total $8.35 billion that private investors put into Kazakh
infrastructure, $5.98 billion went into the telecoms sector.

Operators invest as competition rises
Legislation in 2004 opened the way for liberalization of the
sector and ended Kazakhtelecom’s monopoly. It was followed by

INDUSTRY AND SERVICES

Following liberalization in 2004, the ownership of
major operators by foreign investors helped to boost
subscriber growth as operators expanded their
networks and offered competitively priced tariffs
rapid growth in telecoms and internet services. Cellphone
subscribers soared from just 260,000 in 2000 to 14.9 million
in 2009 – equivalent to mobile penetration of 95.5 percent.
The ownership of major operators by foreign investors helped to
boost subscriber growth as operators expanded their networks
and offered competitively priced tariffs.
Now, the race is on to cover as much of the country as
intensively as possible. GSM Kazakhstan (trading under the
KCell brand), with a market share of just under 50 percent,
invested $250 million in expanding its infrastructure in 2008.
KCell’s main competitor is KaR-TeL, which operates under the
Beeline and K-mobile brand names. And a competitive tender
process in 2007 saw Mobile Telecom-Service launch the
country’s third mobile service.

Saturation driving innovation
With the market close to 100 percent saturation, mobile
operators are moving to upgrade existing services and
introduce new ones. A focus for companies to base their
investments on has been provided by international events
in Kazakhstan last year and this year – the 2010
Organization for Security and Cooperation in Europe
(OSCE) conference, and the Seventh Asian Winter Games
which took place in February this year.
KaR-TeL announced on December 1, 2010 that it had
launched a pilot 4G network in Astana to serve the OSCE
meeting while GSM Kazakhstan launched 3G networks in
Astana and Almaty on the same day, to allow delegates to the
conference to take advantage of the improved quality and
speed of data transfer services.
These launches have kicked off rapid development.
In February, the Kazakh Ministry of Communication and
Information announced that GSM Kazakhstan had rolled out
3G in 27 cities, with another four planned by the end of the
ﬁrst quarter of 2011. Meanwhile, KaR-Tel had launched 3G
in 39 cities, as well as in several rural areas.

Down in the ground
Not everything is up in the air in Kazakhstan. The country’s
national telecoms operator is also rolling out hardwired
communications networks, to support the country’s economic
development and satisfy the growing demand for high-speed,
high-capacity information channels.
In January, Kazakhtelecom announced that it had
completed the deployment of the new-generation, high-speed,
ﬁber-optic gigabit passive optical network (GPON) network in
Astana. Kazakhtelecom will use the new network to deliver –
to individual subscribers and corporate clients – modern
broadband services, such as internet protocol television (IPTV),
video on demand and high-speed internet.
This network rollout is the ﬁrst step in Kazakhtelecom’s
strategic plan to replace the country’s existing xDSL
infrastructure with ﬁber-optic technology. GPON technology will
allow Kazakhtelecom to expand its capacity in providing
broadband internet services in Kazakhstan, while implementing
a wide range of new high-quality, triple-play services.

Booming broadband
As the move to broadband accelerates, the broadband segment
will be the major growth driver for Kazakhtelecom, given its
relatively low penetration (17 percent). Broadband subscribers
as a proportion of the population had reached 10 percent by
early 2010, with the market likely to continue its expansion
by 100 percent annually.
Despite the considerable presence of the incumbent,
Kazakhtelecom across the market, Kazakh internet surfers are
beneﬁting from a diversiﬁed market, which offers an energetic
and competitive environment.
That competition is also pushing rapid development.
In February 2011, the Minister of Communications and
Information announced that Kazakhtelecom would boost the
average broadband speed rate in the country by 100 percent
this year, while subscription fees would remain ﬁxed. n
INVEST IN KAZAKHSTAN 2011

157

158

INDUSTRY AND SERVICES

Steppe out for
world-class adventure

From sports stadiums to steppe
packages, Kazakhstan is training
hospitality workers, building
infrastructure and renovating
hotels for a new breed of tourist. It
also has its eyes on an Olympic bid.
By Nora FitzGerald
azakhstan showed itself to be a
world-class venue for sports
competitions with its successful
showcase of the Seventh Asian
Winter Games in 2011.
Kazakhstan seemed to dominate in every way
possible, earning 70 medals: 32 gold, 21
silver and 17 bronze, well ahead of its closest
rivals. It was the ﬁrst event of this size hosted
by Kazakhstan, and its success plays a key
role in raising conﬁdence for an Olympic bid.
Kazakhstan already has high hopes of hosting
the Winter Olympics in 2022.
The Asian Games were held in
Astana and Almaty, and in preparation for

K

INVEST IN KAZAKHSTAN 2011

its role as host, Kazakhstan invested
$1.5 billion in tourist infrastructure, from
upgrading ski facilities to renovating hotels
and other accommodation.
“We have learned to understand each
other better. I believe this is the main
achievement of these games,” said President
Nursultan Nazarbayev at the closing
ceremony in Almaty. He added that the
sporting event also offered an opportunity
to unveil the country’s improved
infrastructure and facilities.
Business travel has been the dominant
feature of Kazakh tourism over the past
20 years, accounting for 80 percent of the
4.5 million annual visitors to the country.
But now Kazakhstan is targeting a new breed
of tourist, beyond the business executive.
The country is beginning to develop a
broader tourism industry, as the government
and local entrepreneurs showcase the
country’s diverse attractions in sports,
culture and ecotourism.

INDUSTRY AND SERVICES

Big Almaty Lake. A growing number
of tour operators offer trekking vacations
in the Kazakh wilderness

INVEST IN KAZAKHSTAN 2011

159

160

INDUSTRY AND SERVICES

Sports facilities such as golf courses
are being promoted by the government

Space tourism for everyman
Fifty years ago, Russian cosmonaut Yuri Gagarin changed
the world with the ﬁrst manned space ﬂight – from
Kazakhstan. Many Western tourists still don’t realize that
the core space port for the Soviet and Russian space program
is in Baikonur, Kazakhstan.
Websites already offer tours of Baikonur’s facilities. And
while most tourists cannot afford the price of becoming a bona
ﬁde space tourist, intrepid travelers from abroad can soak up
the Sputnik atmosphere. There is a proposal to create more
modern facilities – similar to those at the US’s Cape Canaveral
– at the launch pad of Sputnik, Luna I and Yuri Gagarin. The
new facilities are slated to include a mini-mission control
center simulating space ﬂight, a planetarium and a cosmic
café. As Gagarin said when he took off, “Poekhali!” (Let’s go!).

Intimate venues: ecotourism
and indigenous culture
Across the country, there is an increasing amount of farmhouse
accommodation and bed and breakfasts. The government has
offered training for village families on how to get into the
business and offer hospitality services, and recent investments
in community and rural tourism are beginning to pay off with

increasing numbers of visitors. More tourists are also coming
to experience Kazakhstan’s indigenous culture, such as the
mysterious underground mosques near the Caspian Sea.
In the 20 years of its independence, Kazakhstan has
been a popular choice for Russian, Chinese and other Central
Asian visitors, and the country’s tourism authorities are now
focusing on attracting more Western vacationers. There is
every reason to believe that Western tourists will ﬁnd the
country an exotic and tempting destination.
A growing number of tour operators in Kazakhstan offer
a range of trekking vacations in the Kazakh wilderness, where
the traveler can experience the country’s beautiful lakes,
gorges and glaciers in a true wilderness. For the more
adventurous, these packages can include horseback riding,
whitewater rafting and mountain climbing.
As well as ecotourism, the country has long had a
singular reputation among hunters for the diversity of its
wildlife. Foreign hunters come in search of rare antlers
from the giant deer inhabiting the Jungar Alatau at the foot
of the Dzhongar Alatau mountain range, which borders China.
The area is alive with bear, wolf, snow leopard, eagles and
hawks, and is also an increasingly popular destination for
hiking and horseback holidays.

Tour operators in Kazakhstan offer a range of trekking
vacations, where the traveler can experience the country’s
beautiful lakes, gorges and glaciers in a true wilderness
INVEST IN KAZAKHSTAN 2011

INDUSTRY AND SERVICES

Transport in the Tian Shan mountains,
where hunters seek out the mural deer

Hunters also come to Kazakhstan for the Tian Shan
mural deer, whose giant antlers are similar to those of the
North American wapitis. The Tian Shan – literally ‘celestial
mountains’, stretch across Central Asia.
Most visitors travel to the commercial capital Almaty,
taking in its bustling charm and chic cafés, or to the political
capital Astana, a largely new city of arresting architecture that
has arisen out of the steppe since President Nazerbayev
designated it as the capital in 1997. Both cities are infused
with the country’s new wealth, and are dotted with hip
nightclubs, ﬁne restaurants and ﬁrst-rate shopping.
Yet niche tourism for the adventurous traveler looking
for something a little different has begun to see signiﬁcant
growth as Kazakhstan – the ninth-largest country in the
landmass – capitalizes on its cultural heritage and geographic
wealth. Destinations for niche tourism include the Singing
Dunes, where the shifting sands create a resonant, organ-like
sound, and the Charyn Canyon on the Charyn River, with its
startling lunaresque landscape that can justiﬁably be
compared to the Grand Canyon in the US.
The government has begun to aggressively promote
tourism in Kazakhstan, with exhibitions or presentations in
New York, London, Beijing, Berlin, Madrid, Moscow, Paris,

Seoul, and Tokyo in recent years. “Right now, our number
one priority is to transform the reputation of Kazakhstan
into the tourism hub of the Central Asian region in 2011,”
said Raushan Yesbulatova, the Consul General of the
Republic of Kazakhstan in New York, speaking at a
tourism fair in Manhattan.
In 2010, the Ministry of Tourism and Sports unveiled
Kazakhstan’s ﬁrst ofﬁcial website to promote the country as a
tourist destination (www.visitkazakhstan.kz). “Our site meets
all international standards,” says Karlygash Kaken, the
chairman of the Tourism Industry Committee of the Ministry of
Tourism and Sports. “Firstly, it is in three languages – Kazakh,
Russian, English. Secondly, there is now an opportunity,
having opened the Kazakhstan tourist site, for tourists on any
continent of the world to book a hotel, to visit tourist
attractions and virtually travel to our country.”
And revenue from tourism is experiencing robust levels of
growth, seeing increases of almost 20 percent year-over-year.
Tourism has been designated a priority sector in the
government’s economic development plan, and the government
has created tax incentives to encourage investment in tourist
infrastructure. Kazakhstan expects tourism revenue to reach
KZT66.6 billion ($460 million) by 2015. n
INVEST IN KAZAKHSTAN 2011